Coming on top of the wave of selling prompted by a collapse on Asian and Russian markets, Alcatel's failure to give prior warning of depressed earnings was a jolting reminder to investors of the way continental companies fall behind when it comes to the quality of their financial disclosure.

"It's a disaster which has led to a crisis in confidence in French stocks," said one senior fund manager, of the suddenness of Alcatel's warning.

He and other market operators spoke to Reuters on condition of anonymity, since they were venting frustrations at specific companies.

"Itwill be a while before the U.S investors get over the shock and certainly some of the big buyers will think again before taking any significant stakes in any CAC-40 companies," said a trader at a large French bank.

The French bourse authorities, anxious to retain a share of the international stock market action amid mounting competition, have for several years been pressing traditionally discreet firms to be more upfront about their fortunes, in line with US practices.

Alcatel's slide was aggravated becuse it had been considered by many to be the darling of the index, for the way it attracted large numbers of U.S. investors with its forward-looking corporate practices.

"(Alcatel chairman) Serge Tchuruk was one of the most respected managers in France and big U.S. investors were buying French stocks because of the way they perceived him to be changing the corporate climate here," said one broker.

Knock-on effect: "French companies have always been notoriously awful at giving out information --for example they only give half-yearly statements -- but here was a man who appeared to be telling shareholders what was happening quarter by quarter.

"When Alcatel failed to inform people of that profit-warning it raised all kinds of questions about the way French companies are being managed -- and scared off a lot of people," he added.

Shareholders were shocked by news of disappointing operating profits at the telecom division, due to lower orders from some clients. Financial analysts wondered why Tchuruk did not explain earlier that he did not know, or if not, why not.

Traders and brokers say the episode has also sliced value off other French shares on fears that other companies may not be disclosing full information to shareholders.

"Not only are people questioning how Alcatel was managed, they have suddenly started to look at other French companies and wonder if there were any other black holes out there," said one broker.

A few days after Alcatel's warning, the blue-chip CAC-40 index droppedmore than two per cent in an hour of trade as the market flooded with speculation about profit-warnings and downgrades on utilities like Vivendi and Suez Lyonnais des Eaux .

"That was directly linked to the Alcatel effect," the broker said.

"Up until then no-one had heard of a CAC stock falling more than 10 per cent. People got very nervous about precisely the stocks they had been mega-bullish on, and started to wonder if they could live up to their reputations," he added.

The timing could not have been worse. The biggest and most badly-burned investors were the Americans, and as the dollar slid, they cashed in their deals and walked away.

Unfortunately Alcatel had just completed a high-profile merger, so the profit-warning was to prompt a spate of class-action law suits from U.S. investors alleging it had concealed poor operating results ahead of the deal.

"The majority of our selling was Americans who basically felt that Alcatel had lied to them in order not to jeopardise its ($4 billion) deal forDSC Communications Corp and that left a very bitter taste," said one senior broker.

"Other companies are now feeling a knock-on effect because at the same time as this crisis in confidence came about the dollar went down and the Americans started selling," he said.

If you are investing in Europe, France is important but there are an awful lot of other places you can get similar plays and it will be a long time before those investors who were badly hurt are ready to give French companies the benefit of the doubt," the broker added.

Learning to communicate better, and more, communication is the key to stemming the damage, dealers say. If French companies can tempt shareholders back on a view that they are being more transparent about corporate figures, then big investors may push for greater representation at board level and change the way announcements are made from the inside.

"There has got to be cultural corporate change in the way results are issued. That may tempt back big investors who willencourage things like quarter-to-quarter reporting, the way they have done in the UK and Germany, and that in turn will lead to more visibility and openness," said one broker.

"But it is not going to happen overnight -- look at the way Societe Generale failed to reassure shareholders of its exposure to U.S. hedge fund Long-Term Capital Management until the market had opened on the day news of the bailout was worrying people," he added.

"It's almost as if they don't know how to make this kind of announcement. They need to learn how to do so -- and quickly.