WINSTON-SALEM, N.C. -- R.J. Reynolds Tobacco said Wednesday it is eliminating 2,600 jobs -- a startling 40 percent of its work force -- as the nation's second-largest cigarette maker struggles with stiff competition from discount brands.

RJR said it will focus spending on the more expensive Camel and Salem brands and cut its investment in cheaper Winston and Doral cigarettes.

"Reynolds Tobacco is fundamentally changing the way it operates its business in order to deliver profit growth," said chairman and chief executive Andrew Schindler.

The company plans to cut spending by $1 billion by the end of 2005, he said.

Between 1,600 and 1,700 of the layoffs will be in the Winston-Salem area, where RJR has its headquarters and a big factory in Tobaccoville. The losses will hit particularly hard because they are high-paying jobs: Even factory workers at RJR typically make more than $50,000 annually.

Workers who are losing their jobs will be notified over the next week.

Employees who declined to give their names Wednesday said they are required to sign a confidentiality agreement that prevents them from discussing information about the company with outsiders.

A worker at the Tobaccoville plant who identified himself only by his first name, Joe, smoked a Camel as he ate lunch at the King Cafe before reporting for his night shift. The 48-year-old said he had requested severance from the company, but is concerned about how he'll pay his bills.

"There are real good paying jobs," he said. "I don't like to brag, but the only people here in town making more money than I do are the lawyers and doctors and illegal drug-runners."

Big Tobacco has been hit hard in recent years by higher taxes, settlement payments to the states for treating sick smokers and competition from deep discount brands.

"We're teetering and tottering and don't know exactly what to do," said Danny Cole, 52, who grows 110 acres of tobacco that he sells to RJR rival Philip Morris.

RJR has had a particularly tough year. In the most recent quarter, ending in July, RJR's sales were down 16 percent from a year ago. RJR also withdrew as chief sponsor of the Winston Cup stock car racing circuit to cut costs.

Wall Street welcomed the job cuts, sending the company's shares up more than 13 percent to close at $38.86 on the New York Stock Exchange.

RJR warned of some impending cuts last month, giving workers a chance to request that their positions be considered for elimination. Spokesman Seth Moskowitz said that 75 percent of the positions eliminated in Winston-Salem were ones that workers had requested for consideration.

Workers will get 13 to 78 weeks of severance pay, depending on length of service.

Earlier this summer, published reports speculated on a possible merger involving R.J. Reynolds and British American Tobacco PLC, the parent of Brown & Williamson Tobacco Corp. Schindler insisted the job cuts have "nothing to do at all with any deals in the future whatsoever."

Gary Shoesmith, an economist at Wake Forest University in Winston-Salem, said he is most concerned about the blue-collar workers who face layoffs.

"They're not going to be able to find another $58,000 job," he said. "With low interest rates, most of them are already probably buying the most house they can possibly afford. Looking at those hundreds of people, I'm seeing possible bankruptcies, foreclosures. That's not going to be a pretty sight."

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On the Net:

RJ Reynolds Tobacco: http://www.rjrt.com