Paints group ICI is being quizzed by the City watchdog after its share price slumped following an horrendous trading report.

The Financial Services Authority (FSA) is demanding to know the events leading up to last month's announcement which led shares to plummet and £800m to be lost from its market value as stock fell 39 per cent, or 59.5p, to 94p.

An ICI spokeswoman last night played down the FSA interest, saying: "It is a routine query. They are looking into the background surrounding the fall in the share price."

She said ICI received a letter from the Financial Services Authority early this month. "We believe we can satisfy their questions."

The report of first-quarter losses in its Quest and National Starch divisions prompted the departure of ICI chief executive Brendan O'Neill and Quest chairman Paul Drechsler.

The Dulux paint-maker said at the time immediate action had been taken in both National Starch and in Quest, and ICI was undertaking a group-wide cost reduction review to improve the overall performance of the group.

ICI used to have a major base on Teesside but today employs 400 at its Uniqema plant and further staff at the smaller operations of Regional and Industrial and a research facility at Wilton.