However, it said demand for the company's main products in Europe is expected to remain relatively stable for the rest of the year.

Throughout this year, European papermakers have faced rising production costs and a decrease in the sales volumes of fine paper, causing many to cut jobs and overcapacity, and to raise their prices.

M-real said demand had declined clearly more than the normally expected seasonality, due to a weakening world economy.

A decrease in the market price of pulp has also weakened its profitability more than it anticipated.

The company's results warning is on the back of its larger-than-expected second-quarter operating loss of €21m (£16.5m), made by the company in 2008.

It recorded sales for the same quarter of €1.07bn, compared with €1.1bn for the first quarter of 2008. Sales for the first six months of the year were €2.16bn compared to €2.25bn the same time a year earlier.

M-real is set to close its deal to sell off its graphic papers business to Sappi later this month.

The €750m (£596m) deal includes the sale of the Kangas, Kirkniemi, Biberist and Stockstadt mills, which has a total coated paper production capacity of around 1.9m tonnes per annum.