Eurotunnel, the firm which operates the Channel Tunnel, has warned of gloomy prospects ahead, blaming the unstable economy and political uncertainty.

The debt-laden firm reached its target of breaking even by the end of 2002.

People didn't expect them to make the cashflow breakeven target Marcus Curley, Merrill Lynch

But it acknowledged its debt was still too high and said the "current weak economic environment" would limit its ability to build volume and increase prices in the near future.

Investors were nonetheless cheered by its performance so far, with shares up 10% in Paris.

Limited recovery

"People didn't expect them to make the cashflow breakeven target this year and all credit to them," said Marcus Curley, a transport analyst at Merrill Lynch.

Geopolitical, economic and financial uncertainty is likely to limit our ability to build volumes Richard Shirrefs, Eurotunnel chief executive

A spokesman for Eurotunnel told BBC News Online the group now had "a more stable balance sheet", thanks to reduced spending and tighter control of its borrowing.

Eurotunnel's cash balance turned around from a decrease of �7m in 2001, to an increase of �81m in 2002.

However, the company still had an underlying loss of �105m by the end of 2002, although down from a �147m loss a year earlier.

Chief executive Richard Shirrefs warned that things were unlikely to improve in the near future:

"Short term... general geopolitical, economic and financial uncertainty is likely to limit our ability to build volumes and yields."

Asylum blow

Eurotunnel earns money from tunnel users such as the passenger train company Eurostar and also runs its own car, truck and coach-carrying service through the tunnel.

But Mr Shirrefs said: "The marked slowdown in the economy led to volumes in the truck and passenger markets below expectations."

In 2001, Eurotunnel was hit by asylum seekers using its Coquelles terminal in France to sneak into the tunnel and spent �2m in the first half of 2002 trying to stop the illegal stowaways.

The group said a decision to shut the controversial Sangatte shelter for asylum seekers near Calais had stopped raids on the tunnel.

"Since (the closure of Sangatte), there are practically no attempted raids," said chairman Charles MacKay.

"It is imperative that the government continue to maintain public order."