Swiss watchmakers, whose once dominant global market position has been eroded by the flood of cheap watches from low-cost producers in the far east, celebrated an upturn in earnings as two of the nation's biggest watchmakers clocked up strong first half growth.

Switzerland's biggest watchmaker, SMH, whose brands include Swatch watches, said sales in the first half of 1997 rose 7 per cent to 1.414 billion Swiss francs ($930.1 million). Group operating profit increased 32 per cent to 162 million francs.

Tag Heuer, with its shares publicly listed in Switzerland and the US since last September, said 1997 first half sales rose 6.6 per cent to 226.2 million, and first half net income was up 60.4 per cent at 25.5 million francs.

Industry analysts believe that the fundamental sentiment is turning positive for the Swiss watch industry. Looking ahead, the belief is that full-year results will depend partly on sales in the September to December period, which includes the Christmas buying season.

SMH produces a number of brands besides Swatch, including luxury Blancpain as well as somewhat less expensive Omega and Rado. It said that stronger sales in June and July were led by its upper price segment.

SMH's Swatch watches revolutionised the Swiss watch industry with inexpensive plastic design. Their introduction in 1983 helped to pull the industry out of a long slump. But analysts said sales within the Swatch brand have shifted lately more to SMH's new, slightly more expensive steel "Irony" watches.

Latest figures released by the Federation of the Swiss Watch Industry suggested a similar trend. The data showed exports up 7.8 per cent to 3.857 billion Swiss francs in the first half of 1997.

But in the same period, the number of individual finished watches exported fell 11 per cent to 14.9 million. The export trend was dearer, more durable models, including steel watches, which rose 10.4 per cent in volume terms, while plastic watch exports fell 25.5 per cent.

There has been a curious collapse in plastic watches, said analyst Mr Frederick Hasslauer, at Bank Sal Oppenheim in Zurich. "Consumers in the cheaper price brackets are certainly turning away from plastic watches to attractively priced alternatives such as metals," he added.

Tag Heuer was also upbeat about its outlook. "The outlook for the second half of the year is encouraging and we plan to achieve our strategic objectives," it said.

Another analyst, at Lombard Odier & Cie in Geneva, said that luxury watch makers also were enjoying a strong year. He estimated that Rolex, for example, which does not publish results, will probably achieve revenues in excess of two billion Swiss francs in 1997, up from what he estimated to be revenues of roughly 1.5 billion francs in 1996.