European blue chips mostly fell yesterday as Dutch retailer Ahold dropped a bombshell for war-weary investors, revealing hefty account irregularities in a throwback to last year's damaging US accounting scandals.
"Ahold probably wasn't one of those companies that was known for its conservative accounting methods, to put it politely, but it still has shocked the market," said Rolf Elgeti, head of strategy at Commerzbank.
British engineering group Invensys also fell heavily to a new all-time low amid deepening worries about its recovery prospects and exposure to banking covenants.
But overall trading volumes were light as declining stocks outnumbered advancers by about three to one.
By 1642 GMT, with only Frankfurt still trading officially, the FTSE Eurotop 300 index was down 1.1 per cent at 777 points, while the narrower DJ Euro Stoxx 50 index had dropped 2.0 per cent to 2,163 points.
Both indices have been bumping along near six-year lows for the last four weeks, as investors await a denouement to the ongoing drama of potential US-led war with Iraq.
A new US-British resolution that would set the stage for war in Iraq by declaring Baghdad in violation of UN demands will be introduced on Monday, Security Council diplomats said.
But getting approval will be difficult in the face of opposition from France, Russia and China, who have the power of veto on the 15-member council.
The Dutch AEX index easily underperformed the rest of the region with a loss of 5.4 per cent, as Dutch firms led the fallers, cementing Amsterdam's current standing as Europe's most volatile market, according to strategists at ING.
But Italy and the Nordic region bucked the weaker trend and traded flat, partly thanks to gains in road-toll operator Autostrade and tech bellwether Nokia.
Ahold crashed 63 per cent after the world's third-largest retailer revealed accounting irregularities at its US unit, shed its chief executive and chief financial officer and said its operating earnings had been overstated by some $500 million.
The announcement reignited corporate accounting worries that dogged the market throughout last year amid the fallout from the Enron and WorldCom scandals.
Shares in Dutch insurers ING and Aegon, which both own stakes of at least five per cent in Ahold, slumped around seven per cent each.
Also hurt was British engineer Invensys as doubts swirled about its financial health and its capacity to meet banking covenants, after Moody's cut its outlook to "negative" on the firm's already-junk credit ratings on Friday.
The shares slid 10.8 per cent even though Invensys said it was confident of meeting its covenants, extending its losses since warning on profits 10 days ago to more than 60 per cent.
Shares in Suez fell 6.14 per cent after a local newspaper report said the French multi-utility was mulling the sale on the open market of its 37 per cent stake in television group M6, stoking fears that it is squeezed for cash.
Analysts played down the talk and said the sector was suffering pre-results nerves, with Suez reporting on Thursday next week.
Rival Vivendi Environment, which posts its earnings two days earlier, saw its shares slide 7.0 per cent.
Meanwhile, Spanish utility Endesa fell 4.54 per cent on news it is planning a two billion euro issue of preference shares as part of its efforts to lighten its heavy debt burden.
Elsewhere, Germany's Bayer fell 8.8 per cent after a report in the New York Times said the company may have known about problems with its Baycol anti-cholesterol drug years before it was pulled from the market.
Clariant was down 4.9 per cent on fears the indebted Swiss chemical firm may unveil a rights issue when it is expected to detail a new restructuring plan today.
Spanish Internet group Terra Lycos stood out among climbers, surging 11 per cent amid optimism ahead of its results tomorrow and as rumours resurfaced that parent Telefonica was set to delist the firm, traders said.
Wall Street was nervous, with the Dow Jones industrial average shedding 1.4 per cent and the tech-laced Nasdaq down 1.0 per cent.
Economists warned the prospect of a damaging Iraqi war was further complicating an already difficult economic situation.
The world economy is on the brink of its second recession in three years, saidMorgan Stanley's chief economist Stephen Roach, as he slashed his global GDP growth forecast for 2003 to 2.5 per cent from 2.9 per cent.
Anaemic economic growth in Germany, Italy, Switzerland, and the Netherlands was seen dragging on the rest of Europe, which Morgan Stanley now sees expanding just 0.8 per cent this year.
"This year was supposed to be the year of the recovery but that could be postponed another year," said Derek Mitchell, director of equities at ISIS Asset Management.