Luxury jeweller Tiffany has seen its profits unexpectedly slide during the third quarter, as higher precious metals prices squeezed margins.

Net earnings fell by more than a quarter - 26 per cent - while retail sales growth in the US was hampered by a disappointing performance in Japan.

Total net sales increased by seven per cent for the quarter to $461 million, up by more than $30 million on the previous year.

Precious metals prices have steadily risen in recent months, breaking the $850 barrier in October, with Tiffany warning that the costs were mounting.

Nevertheless, with US retail sales of $216.5 million in the third quarter, up seven per cent on 2003, and the firm's flagship New York stores performing well, there were some encouraging figures.

Michael J. Kowalski, chairman and chief executive, acknowledged the "disappointing results", but said initial customer reactions to the entire range of new products were "exciting", with successful early results also coming in from the firm's new stores.

Tiffany offers a range of platinum lines, covering bracelets, rings, earrings and watches, with the firm's premier offerings, such as the Tiffany lace three-row necklace, costing as much as £36,700.