Market sources said it was trading actively on Reuters Instinet system in London. Alcatel said in a statement that its operating income at its key Telecom segment "will be adversely impacted by the sharp investment cuts recently decided by some traditional operators and the deepening of the Southeast Asian and Russian crisis."

"After reviewing the accounts and currently available forecasts, Alcatel anticipates that 1998 will not meet expectations in regard to the group's operating performance," it added.

Chairman Serge Tchuruk told a news conference that big telecom operators such as Deutsche Telekom, France Telecom and Telefonica had reduced their orders post privatisation to prune their cost base in a liberalised market, but he added this would pick up again.

He said that without the order cutsand Asia effect, first-half sales would have been 10 per cent higher than the 61.6 billion francs ($10.91 billion) reported. For the full year, he said, the impact would be reduce sales by eight per cent.

The warning hit telecom shares over Europe for the second day running and proved the prescience of a recent report by Nikos Theodosopoulos, telecom equipment analyst at Warburg Dillon Read, which warned about the uncertainty in South American and Asian markets. The shares of Lucent Northern Telecom across the Atlantic were mauled and Ericsson, Nokia and Philips were also hit.

Alcatel chairman Tchuruk said the group would not be able to hit the 5.5 to six billion francs in operating income from telecom in the full year 1998 as currently expected by analysts.

The company said its full-year sales should increase by approximately 10 per cent from a comparable 131 billion francs for 1997, taking account of a change in company structure.

Finance director Jean-Pierre Halbron said the operating income forthe key telecom activities would be much higher in the second half than in the first half and indicated that the rate of growth of the telecom operating income in the first half, at 33 per cent, could be maintained for the full year.

Alcatel had a 3.1-billion franc operating income in telecom in 1997, of which 0.6 billion was in the first half.

The group made a telecom operating income of 0.8 billion in the first half of 1998, and Alcatel officials said that if the growth rate from the first half last year to the first half this year were extrapolated for the full year, the operating income would be around four billion francs for telecom for 1998.

Tchuruk said the company was speeding up its productivity efforts, which could lead to further plant closures, outsourcing and resource re-allocation, to get back on track for a goal of making an operating profit of eight per cent of sales.

In the first half, this was 3.7 per cent, up from 3.1 per cent last year.

JP Morgan said in a June 24 report it wasexpecting a 1998 operating income, at the new company structure, of 6.64 billion francs for telecom, making up the lion's share of a total operating income of 9.383 billion.

Alcatel reported a first-half net income of a record 15.2 billion francs, compared to 1.5 billion last year, due to a 13.7 billion capital gain on the sale of Cegelec to Alstom and the market float of Alstom.

Operating income rose to 2.3 billion francs from 2.0 billion and new orders increased to 64.4 billion from 62.2 billion.