UNCORKING PROFIT; WINEMAKERS BUBBLY OVER CHAMPAGNE GAINS.

Byline: John Tagliabue The New York Times

Champagne is to New Year's as cotton candy is to carnivals. So, with the millennium approaching, and with it the biggest New Year's Eve party in a while, sparkling winemakers throughout Europe are happy to talk about how well they are doing these days.

In this quaint city at the heart of the Champagne district in northeastern France, as elsewhere in the country and in Spain and other countries, makers of sparkling wine are busily taking orders for the celebration. Some wineries will release special millennium champagnes, others have increased the amounts they produce, and there will be emphasis on distinctive packaging, with bigger bottles and memorable labels.

The makers of champagne - who are expected to deliver 280 million bottles worldwide this year - expect to top 300 million for the first time in 1999. The makers of cava, the sparkling wine from northeastern Spain, expect to sell 215 million bottles in 1998, 20 percent more than last year, and are forecasting similar growth in 1999.

``The world of bubbles is booming,'' said Daniel Lorson, a spokesman for the organization here that represents the champagne producers.

But among those bubbles is at least one cloudy enough to cause analysts and winemakers to worry.

As the economic malaise in Asia threatens to put a damper on sales in a region that no longer has much to celebrate and to infect the rising middle class in other emerging markets that have proven lucrative to European sparkling winemakers, the industry is banking increasingly on the turning of the millennium to maintain the momentum of its recovery from a severe battering in the early 1990s. Indeed, winemakers are so optimistic that some experts are increasingly apprehensive about a possible post-2000 hangover.

``The next two years will be very positive for champagne,'' said Jean-Marie L'Home, an analyst with Banque Nationale de Paris. ``After that, we'll see.''

For now at least, the industry's overall export business is coming up roses. This year, producers of cava will export 105 million bottles, double the amount five years ago; in France, exports of champagne will rise to 110 million bottles, up from 73 million in 1992. ``They have very, very good income,'' said Michel Bettane, editor of Revue du Vin de France, a French trade publication.

Indeed, champagne sales qualify as one of the few bright spots for luxury goods conglomerates like LVMH Moet Hennessy Louis Vuitton, the French group that makes not only Louis Vuitton bags and Hennessy brandy, but also owns several of the most prestigious champagne brands, including Moet & Chandon.

Flagging sales in Asia, where LVMH generates roughly half its revenue, have pushed its share price down to about 950 French francs, or $158, from 1,600 last year. But of all LVMH's businesses, champagne ``is getting more profitable, and is the only one improving,'' said Joseline Gaudino, who follows the group at Societe Generale in Paris.

Production of French champagne, in the region that invented sparkling wine in the 17th century, represents just 4 percent of total French wine production. But in 1997, champagne generated roughly 33 percent of France's $4 billion in earnings from wine exports.

It was not always so for the industry.

In the heady years of the 1980s, sales of sparkling wines like champagne and Spanish cava, borne aloft by the decade's conspicuous consumption, grew rapidly. By 1989 champagne makers delivered 249 million bottles to consumers, compared with 35 million bottles in the 1950s. In Spain, cava's triumph was equally spectacular. In 1989, sales reached 142 million bottles, up from 81 million a decade earlier.

But as corks popped around the globe, prices for sparkling wine soared, as did the cost of the grapes used to make it. In 1992, as recession engulfed Europe, the bubble burst. That year, champagne sales plummeted to 214 million bottles; by the following year, sales of cava had slumped to 128 million bottles.

In the United States, one of the biggest markets, consumption of sparkling wines peaked in 1985 at 18 million 9-liter cases (216 million bottles) but then hit the skids and declined to about 12 million cases (144 million bottles) last year.

When the market collapsed, prices did too. In France, champagne prices dropped by as much as 65 percent, and those who rarely drank champagne before could not resist picking at the bargains. That, paradoxically, started a market recovery.