Updated from 5:31 p.m. EDT

Instinet

(INET)

lost a penny a share in the first quarter, meeting analysts' lowered estimates, as sluggish trading and a price war with rivals ate into its transaction revenue and reduced its market share.

"Instinet's first quarter results reflect the challenging operating environment," Chief Financial Officer Mark Nienstedt, who is also acting president and CEO, said in a press release. "While transaction fee revenues and operating earnings were affected by market share declines and lackluster market volumes along with our price reductions, we believe the actions we have taken are improving our competitive position."

Excluding restructuring costs, goodwill impairment and other items, the electronic trading exchange lost $3.4 million, or 1 cent a share, in the first quarter, down from a profit of 14 cents in the fourth quarter and earnings of 21 cents in the year-ago quarter. After Instinet warned in March that it would post a loss rather than a profit in the first quarter because of pricing pressures, analysts were expecting the penny loss.

Including the gains and charges, Instinet lost $34.7 million, or 14 cents a share, for the first quarter, vs. a profit of $50.1 million, or 24 cents a share, last year. The company took a $19 million charge to write down the value of acquisitions and a $15 million pretax restructuring charge related to planned cost reductions of $120 million through the first half of this year.

As part of the $120 million cost-cutting effort, Instinet said it had laid off 195 workers in the first quarter, leaving its global headcount at 1,937 on March 31. It will close its fixed-income electronic brokerage business, discontinuing operations on May 3. The closure will result in a charge of $15 million to $20 million, executives said.

The company said its market share of

Nasdaq

-listed volume fell on a quarter-to-quarter basis, dropping to 11% from 11.7% in the fourth quarter and 15.1% in the first quarter of 2001. But on a month-to-month basis, market share has started to creep back, particularly among active traders.

On a conference call, Instinet executives said they will continue cutting average prices, dropping them another 20% in the second quarter. The company reduced average prices 18% in the first quarter.

Instinet's transaction fee revenue totaled $267.0 million in the first quarter, down 36% from $415.5 million in the comparable period in 2001. Net revenue from U.S. equity transactions fell 44% from the first quarter of 2001 "due to the combination of an 18% decrease in Instinet's average pricing, a contraction in our Nasdaq market share, and a 15% decline in average daily volume in the Nasdaq market overall," the company wrote in a statement.

Ahead of Instinet's earnings release Thursday, UBS Warburg lowered its rating on Instinet to reduce from hold and lowered its price target to $4 from $7, saying the company's recent efforts at cost containment, including two rounds of layoffs last year, aren't "sufficient to protect the firm from the current competitive and pricing pressures."

Shares of Instinet closed down 19 cents, or 2.7%, to $6.92.

After a rough year, Instinet parent

Reuters

(RTRSY)

is reportedly weighing strategic alternatives for the unit, including buying back the remaining public shares, forming a strategic alliance or putting the company on the block.

Chief Executive Douglas Atkin

recently resigned and was replaced by Nienstedt.