UK software firm Logica has said it plans to cut about 700 jobs, citing "difficult" trading conditions.

Logica, which makes software for mobile text messaging, said tough competition and sluggish demand were likely to hit sales in the second half of the year.

The statement was poorly received by investors, who marked Logica shares down by as much as 25% before they recovered to close at 243p, down 17% on the day.

"Trading conditions at our Mobile Networks division have worsened considerably as the current half has progressed," the company said in a statement.

"Messaging revenue in the half will show a significant decline over the first half."

Logica said it plans to push through a restructuring programme aimed at saving �40m a year, incurring one-off costs of about �34m.

Telecoms gloom

The move is likely to dampen investor sentiment towards the telecommunications and IT sector, revived earlier this week by better-than-expected results from internet equipment maker Cisco Systems.

Logica said the global information technology market had "tightened further," blaming spending cutbacks at major corporations.

"We do no currently anticipate a short-term improvement, " the company said.

This is the second time this year that Logica has guided sales expectations lower.

In February, the company warned that growth would be hit by an anticipated dip in Japanese demand, wiping 16% off its share price.

Relegation fears

Logica is the world leader in text-messaging software, which accounts for about a third of its total sales.

However, the company is thought to have fallen behind in the rapidly-growing market for mobile software used to send pictures and video clips.

Logica is widely expected fall out of the FTSE 100 when the blue-chip index is next reviewed, following a steep share price decline.

The company's stock is down from a high of nearly �30 at the height of the technology boom in March 2000.