Paints and chemicals group ICI saw £700 million wiped from its market value yesterday after shocking the City with a sharply lower profits forecast.

ICI also warned of further job cuts because of the problems at its Quest food flavouring and National Starch businesses.

Those difficulties mean profits before one-off items in the first quarter of 2003 will be around £50 million, rather than the £66 million a year earlier.

That forecast alarmed investors as the Dulux paint maker's share price slumped 39 per cent or 59.5p to 94p.

ICI is now valued at just over £1.1 billion.

The London-based company, which employs 5,550 UK staff at factories including Middlesbrough, Slough and High Wycombe, has not disclosed where the jobs will be lost.

It has already cut 1,200 positions as part of a 1,450-strong reduction announced in November 2001.

ICI's core paints division is still trading in line with hopes but analysts said the problems with the two divisions were a big concern.

Hilary Cook, of Barclays Private Clients, said: "Although the problems may be a one-off, it is still a real blow to confidence."

In the Dutch-based Quest flavouring and fragrances division, ICI warned first quarter sales were set to be ten per cent below those seen in 2002.

The decline reflects problems in Quest's European food business, where business has been lost following customer service problems in the wake of IT systems changes last year.

Trading profits in the division are forecast to plummet from £29 million to around £9 million this year.