Olivetti's shares went tumbling after the group, which controls Telecom Italia, finally spelt out its financing plans following the takeover by Pirelli in July.

Olivetti said it would seek authorisation to raise its ceiling on capital increases by €7 billion in the next five years.

Although it said no new share sales had yet been scheduled, the threat of share dilution was enough to send the shares down more than 15 per cent to €1.23.

Olivetti's price has fallen 47 per cent since the Pirelli takeover.

Tyres and cable company Pirelli was also hit, falling 8.1 per cent to €1.87. Both shares are at their lowest level since October 1998. Telecom Italia fell 8.3 per cent to 8.15.

Olivetti has about €18 billion of debt. Analysts said any capital increase would be at least partly targeted at debt reduction.

In the Netherlands, KPN fell almost 18 per cent to €2.21, its sixth fall in a row, many of them in double digits. Both France Telecom and Deutsche Telekom fell to levels last seen at the end of 1997. France Telecom, which has first-half results out today, lost 7.3 per cent to €31.65. Deutsche Telekom lost 3.2 per cent to €15.98, ever closer to its €14.30 flotation price of five years ago.

Things also remained ugly in the telecom equipment sector, as Alcatel's chief executive Mr Serge Tchuruk warned that achieving an operating profit this year would be a challenge in current market conditions. The shares fell 11.5 per cent to €15. In July Mr Tchuruk had predicted a positive operating result for 2001.

Mr Tchuruk's words follow hard on the heels of his opposite number at Ericsson the day before. Ericsson's shares, which had lost almost 11 per cent on Tuesday, fell another 7.5 per cent to SKr41.70, as analyst downgrades flooded in. Morgan Stanley, UBS Warburg and Goldman Sachs all cut either their earnings per share forecasts or share price targets. Nokia fell 7.8 per cent to €15.90.