Shares in troubled French telecoms equipment maker Alcatel have soared after the firm revealed good progress in cutting its debts.

Shares in Alcatel closed more than 40% higher at 5.20 euros on Wednesday, underpinning a strong performance from the French stock market.

The rally came after Alcatel said it was on track to cut its total debt to below 2bn euros ($1.9bn) by the end of the year, down from its previous estimate of 2.6bn euros.

The reduction in debt partly reflects a radical cost-cutting and restructuring exercise which has seen Alcatel axe thousands of jobs.

Losses widen

The lay offs are expected to leave the firm with less than half the 113,000 strong workforce it boasted at the height of the tech bubble.

The company's success in trimming its debts outweighed news that the firm had racked up bigger than expected losses for the three months to September.

The firm said losses had widened to 1.35bn euros from 558m euros one year earlier, citing a sustained downturn in telecoms investment and hefty restructuring costs.

On an operational level - excluding debt repayments and one-off costs - the firm lost 227m euros, while sales fell 37.5% compared with the same period last year.

But the company said it would return to operational profitability next year.

Future confidence

"We are quite confident in our capacity to generate an operating profit in 2003," said chief executive Serge Tchuruk.

"We have factored another deterioration in the market into our plans, and we've taken enough margin to protect ourselves."

But Stephane Houri at Fortis Bank warned: "Given the production overcapacity and debt levels of the main European (telecom companies), we see no ray of light on the market before end-2003."

Alcatel's rivals - firms such as Lucent, Nortel and Marconi - are in no better shape.

Telecoms firms are struggling to make profits in hugely competitive but mature markets.

This makes it difficult for companies to serve their huge debts, and in turn rules out new large-scale investments.