All telecoms companies were weak but especially France Telecom, which continued plummeting on fears about the MobilCom debacle. They closed 10.4 per cent lower at €11.43, extending last week's 18 per cent fall.

Frankfurt DAX: 3,609.41 (-103,53); Paris CAC: 3,272.76 (-93,45)

Last week France Telecom announced it was postponing its results, originally due tomorrow, for two weeks.

One trader said: "Whichever way you look at it, France Telecom looks in a mess as it will cost it dear if it pulls out of MobilCom and even dearer if it stays in and is forced to take over the unit."

Deutsche Telecom fell 4.7 per cent to €10.90 and Telefonica fell 2.4 per cent to €9.13.

Technology stocks were also weak, led by Ericsson, which lost 5.6 per cent to SKr6.75 and Infineon, which fell 5.3 per cent to €11.15.

Insurer Zurich Financial fell steeply as the shares were hit by talk of a large rights issue and a first-half loss. The shares fell 11.1 per cent to SFr132, extending their losses this year to 66 per cent.

Zurich's shares were also under pressure from its expected removal from the Stoxx 50 index after the close.

There has been speculation for some time that Zurich would have to take measures to raise capital. A press report on Sunday said Zurich was poised to announce a $2.5 billion capital increase with first-half results, which were expected to show a loss of $300 million. The company had no comment.

France's Axa dropped 5.3 per cent to €13.23, as the market became increasingly cautious about its final results due after the market closed.

Fortis, the Belgian-Dutch financial services group, which was rumoured to replace Zurich in the Stoxx 50 index, held its loss to 3 per cent at €17.79 .

French pharmaceuticals group Sanofi-Synthelabo was among the day's hardest hit stocks after the company forecast weaker sales growth in the second half.

The shares tumbled 9.7 per cent to €55.20, also reflecting concerns that earnings in the first six months had been flattered by an unexpected fall in the tax rate.

Sanofi said it expected sales to grow slightly slower in the second half than in the first half. The statement overshadowed a 29 per cent jump in first-half earnings.

BNP Paribas took a different view, raising its rating on the stock to outperform. The bank, which recently turned neutral on the stock on valuation grounds, said it saw nothing in Sanofi's statement that could threaten its forecasts and its target price for Sanofi of €71-€74.

Airlines' vulnerability to terrorism returned to haunt them as details emerged of the suspected attempted hijacking of a Ryanair flight from Sweden. Lufthansa fell 6.1 per cent to €12.10, Air France lost 3.9 per cent to €13.15 and KLM sank 3 per cent to €11.14.

Steel company Arcelor rose following second-quarter results. The company forecast a profit in the full year and announced that second-quarter earnings before interest and tax were €274 million, beating analyst expectations. The shares rose 0.8 per cent to €12.50 on their main listing in Paris.

Oil stocks eased a little as the prospect of extra supplies from exporting countries put pressure on crude oil prices. Russia and Venezuela pointed to growth in their output ahead of an Opec meeting on September 19th.

Total Fina fell 3 per cent to €141 and Royal Dutch fell 1.1 per cent to €45.50.

Norwegian oilfield services company Petroleum Geo-Services (PGS) rose 10.1 per cent to NKr5.34 after news that a board member had raised his stake in the troubled company.

PGS launched a cost-cutting programme after a planned merger with US rival Veritas collapsed earlier this year.