Shares in Cathay Pacific Airways were set to open down 3.66 per cent on Thursday, a day after soaring fuel costs caused Hong Kong's dominant carrier to post its first interim loss in five years.

On Wednesday, Cathay posted a net loss of HK$663 mn ($84.95 mn) for the January-June period, versus HK$2.58 bn in profit a year earlier. The worse-than-expected result was the carrier's first interim loss since the SARS epidemic devastated the regional tourism industry in 2003.

The carrier said its total six-month fuel bill soared 83 per cent to HK$19.31 bn ($2.47 bn), and fuel as a percentage of total operating costs rose to 45.3 per cent from 33.6 per cent during the reporting period.

On Thursday, Morgan Stanley reiterated its "underweight" rating on the stock, saying consensus net earnings expectations are too high for 2008. "We think the aggressive passenger capacity growth in 2008 implies the carrier could be pursuing market share gain at the expense of yield," Morgan Stanley said in a research note.

Deutsche Bank late on Wednesday downgraded Cathay Pacific to "hold" from "buy" after the unexpected first-half loss.