European markets seeing red

WorldCom reduces markets to rubble

LONDON, England (CNN) -- European markets ended where they began on Wednesday, awash in red, after managing to staggering back from near knockout punches by WorldCom and Alcatel.

The markets -- which fell between three and five percent during the session -- were hit first by U.S. long-distance phone operator WorldCom (WCOM), which said it had uncovered improper accounting for almost $4 billion in expenses and would restate its results. It also fired its chief financial officer and said it would lay off 17,000 employees. (Full story)

That was followed by a warning from French telecom equipment Alcatel (PCGE) that it would post an operating loss this year and cut more jobs in 2003. The company's stock fell 27 percent to 6.83 euros, before recovering slightly to close down 16.5 percent at 7.81 euros. (Full story)

London's FTSE 100 closed down 2.2 percent to 4,531 and the CAC 40 blue chip index in Paris lost 1.7 percent to 3,701.13, while Frankfurt's electronically traded Xetra Dax was down 1.9 percent to 4,121.59 in late trading (the German market was set to close at 1900 GMT).

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was down 1.9 percent at 1,026.20, after hitting nine-month lows during the session. Leading the declines were information technology, telecom and insurance stocks. Media and auto were the only sub-indices to chalk up gains on Wednesday.

"I have no confidence the market will stop at these levels," David Thwaites, pan-European equities strategist at BNP Paribas, told Reuters.

"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."

The banking sector was under pressure amid concerns many may be hurt by the collapse of WorldCom, which has debts of about $30 billion. The insurance sector was also hammered as equity markets continued their relentless slump, raising fears about their solvency.

France's Axa (PCS), the world's biggest insurer, fell 3.9 percent to 16.93 euros, Zurich Financial lost 4.5 percent and Dutch Aegon shed 3 percent. Britain's Prudential (PRU) fell 3.1 percent, Royal & Sun (RSA) declined 5.9 percent, while CGNU (CGNU) dropped 3.4 percent.

Not surprisingly, telecom stocks were hard hit by the WorldCom news. Vodafone (VOD), Europe's biggest mobile phone company, fell 4.7 percent to 85.84 pence. France Telecom (PFTE) slumped 8 percent to 9.75 euros and Deutsche Telekom (FDTE) was down 5 percent to 8.60 euros in late Frankfurt trading.

Nokia, the world's biggest mobile phone maker, slid 3.1 percent to 13.35 euros, while Swedish rival Ericsson fell 6.9 percent to 13.50 crowns.

Vivendi Universal (PEX), Europe's biggest media company, recovered from earlier losses to close up 7.8 percent at 21.60 euros after Chief Executive Jean-Marie Messier survived a key board meeting. The company said it was convinced it could meet its financial obligations over the next 12 months. (Full story)

But many analysts were unconvinced by the company's debt and management.

"On balance, we judge that the high level of short-term debt and complexity of the group make Vivendi Universal an unattractive way of getting exposure to the media industry for equity investors," Lehman Brothers said in a note to clients.

The AEX index in Amsterdam fell 2.4 percent and Milan's MIB30 dipped 1.3 percent, while the SMI in Zurich declined 2.6 percent.

In the U.S. on Wednesday, U.S. stocks reclaimed some of their sharp early losses after President George W. Bush said the government would fully investigate WorldCom's disclosure of what could be the largest accounting fraud ever.

At midday, the Dow Jones Industrial Average was down 105.08 points, or 1.2 percent, to 9,021.74, while the Nasdaq composite index lost 12.55 points, or 0.9 percent, to 1,411.44.