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The world's two largest steel companies, Mittal Steel Co. and Arcelor SA, each posted a drop in first-quarter earnings and the continued tit-for-tat moves in their long-running takeover battle.

The results for both companies were better than many analysts expected and each gave an optimistic outlook for the steel business. Separately, ThyssenKrupp AG also reported a profit decline for the second fiscal quarter, ended March 31, but raised its fiscal 2006 sales and earnings forecast.

Mittal, based in Rotterdam, Netherlands, and No. 1 in terms of production, said it is moving closer to launching its official bid to acquire Luxembourg-based Arcelor. Mittal announced its intentions to acquire Arcelor on Jan. 27 in a bid that is now valued at £¿0.9 billion ($26.84 billion).

Mittal, listed in the U.S. and Europe, is awaiting approval from stock-market regulators in Europe but expects to launch its bid early next week. Arcelor investors would have about a month to decide whether to tender their shares.

Arcelor, meanwhile, announced its latest defensive move, a program to buy back up to 150 million shares, or 24.3% of the company, for about $6.42 billion. The company has called a special shareholder meeting for Friday to vote on the proposal.

Arcelor says the stock buyback gives shareholders an alternative to Mittal's offer. But Mittal executives said the move shouldn't be a huge obstacle to their bid, which adjusts by offering less cash according to how much Arcelor pays to its shareholders. They expect regulators to allow both tenders to go before shareholders simultaneously.

Mittal said its first-quarter earnings fell 35% to $743 million, or $1.05 a share, from $1.15 billion, or $1.78 a share on fewer shares outstanding, a year earlier as the cost of some raw materials increased and steel prices stagnated in certain markets such as Asia and Africa. Sales rose 31% to $8.43 billion from $6.42 billion.

"We expect the market recovery to continue in the second and third quarter of 2006, supported by improvements in the Asian market," said Lakshmi Mittal, chairman and chief executive of Mittal, in a statement. The company said it expects operating profit to be at least 17% higher in the second quarter than in the first quarter and strengthening further in the third quarter.

Arcelor's first-quarter profit fell 20% to £¿61 million from £¿49 million. Revenue rose 17% to £¿.57 billion.

Germany's ThyssenKrupp said net profit in the quarter ended March 31 fell 60% to £¿29 million, or 84 European cents, a share, from £¿.06 billion, or £¿.13 a share, in the year-earlier quarter. The latest results included a gain of £¿42 million due to a break-fee payment from Dofasco Inc. for ThyssenKrupp's failed bid for the Canadian steelmaker earlier this year, which was eventually taken over by Arcelor. The year-earlier results included gains from residential real-estate sales.

Pretax profit, the company's preferred measure, soared 73% to £¿73 million from £¿48 million in the same period last year. Sales rose 11% to £¿1.79 billion from £¿0.61 billion.

ThyssenKrupp also said its board approved plans to invest $2.4 billion for a new steel mill in Brazil and ordered a feasibility study for a steel mill in the U.S. that could result in a total investment of £¿.8 billion.