European markets remained mired but off their lows in line with New York yesterday afternoon, after accounting irregularities at WorldCom blew apart fragile investor hopes for a genuine profits recovery.
Deutsche Telekom and France Telecom were among the top blue chip fallers as their ability to service huge debts came under growing scrutiny, joining Alcatel on the loser board after the French telecom gear maker issued a profit warning.
Offering some ballast was battered European media leader Vivendi Universal, which erased double-digit losses to trade almost five per cent higher after JP Morgan upgraded the stock to "buy" from "market perform".
By 1504 GMT, the FTSE Eurotop 300 index of pan-European blue chips was down 2.4 per cent at 1,020 points, having been five per cent down in early trade at its weakest intraday levels since September 21 when it slumped to 953.61 points in the wake of the attacks on the US.
US telecom giant WorldCom's revelation, which wiped e140 billion off the value of Europe's 300 leading firms, was the latest in a long trail of company accounting scandals that began with the crash of US energy giant Enron in late 2001.
Investors also boosted the euro to near parity against the dollar, piling on the pressure on firms with major US interests and on the region's exporters whose products will be more expensive as a result.
"There was already uncertainty over the cyclical upturn and how this would feed through to better earnings and on top of that we now have structural issues that have clouded the picture completely - dollar strength and accounting practice," said David Thwaites, pan-European equities strategist at BNP Paribas.
Strategists were reluctant to call a bottom in the market, noting that the latest sell-off was in modest volume and was characterised more by a lack of buying than by panic-selling.
"I have no confidence the market will stop at these levels," said BNP's Thwaites.
But fund managers did their best to keep their heads amid a broad-based sell-off.
"The right thing to do as an investor is to see whether quality stocks have been overpunished along with stocks that have deserved it. And that comes down to careful analysis of balance sheets, liabilities, and boring accounting," said Alan Zlater, European fund manager at Credit Suisse Asset Management.
Technical analysts were also keeping calm. "I am not panicking yet. If markets stabilise over the next few days they will form a second bottom since September 21, from which the next, a more mature phase of a bull market will develop," said Thomas Anthonj, a technical analyst at ABN Amro.
But on the downside, he added, if the DJ Euro Stoxx 50 index broke through September 21's 2,741-points low then the next key level was the 2,388 points trough recorded in 1998.
The DJ Euro Stoxx 50 index was 2.4 per cent lower at 2,936 points.
In New York, the Dow Jones industrial average slumped 1.8 per cent and the Nasdaq Composite shed two per cent.
Alcatel Piles On Woe Alcatel was the top decliner, down 15 per cent having touched record lows, after the French telecom equipment maker stunned investors with a shock profit warning.
Alcatel, one of the world's top three equipment suppliers, said it was headed for an operating loss this year, fueling fears a long-awaited pick-up in orders is still some way off.
Insurers, banks and other financials were also among the weakest sectors amid fears about their asset base because of the continued slump in their equity holdings and concerns over their exposure to WorldCom's $30 billion in debt.
Swiss insurer Zurich Financial also had its credit rating cut by Moody's and lost 7.4 per cent.
Elsewhere, the focus was on the region's debt-laden telecom operators such as France Telecom and Deutsche Telekom, whose bonds plummeted, further compromising their ability to reduce debts of more than 60 billion euros apiece.
France Telecom's shares, down more than 70 per cent so far this quarter, crashed a further eight per cent, while those of its German rival shed 6.7 per cent.
That helped the DJ Stoxx telecom index post the day's worst sectoral performance, with a loss of 4.3 per cent.
U.S. long-distance phone company WorldCom fired its chief financial officer and said it would restate its 2001 and first quarter of 2002 results to show net losses after uncovering improper accounting of almost $4 billion in expenses.
Some analysts now expect WorldCom to eventually declare bankruptcy.
Almost forgotten amid the selling furore was the U.S. Federal Reserve's two-day rate-setting Federal Open Market Committee meeting, which winds up around 1815 GMT.
No rate change is expected but investors hope the central bank will issue some reassuring comments about the economy.