The profits warning by Ericsson, the telecommunications company, helped send Stockholm sharply lower. Ericsson shares were down 22.9 per cent at one stage before rallying to close at 199 Swedish krone, a loss of SKr38.50 or 16.2 per cent. The general index finished 154.27 or 4.7 per cent lower at 3,150.12.

Ericsson said its fourth-quarter profits would be 15 to 20 per cent below expectations due to a drop in global demand. It added that the announcement of its full-year results on January 28th would include plans to cut as many as 10,000 jobs.

Helsinki felt the effects of Ericsson's revelation, which depressed the share price of market leader Nokia. The Hex index ended 84.26, or 1.6 per cent down, at 5,047.15. Nokia, which accounted for about 80 per cent of the total trade of 2.11 billion Finnish markka, fell FM16.50, or 3 per cent, to FM535.

Frankfurt ended 26.27 lower at 4,650.30 on the Xetra DAX index to extend its decline to 162 points in five days.

Dresdner Bank gained 2.10 deutschmarks to DM70.50 on upbeat dividend news, but the broad trend was visibly downwards with sellers still firmly in command. Cyclicals soaked up most of the day's selling.

Linde shed DM26.40 at DM853.20 and Viag came off DM22.5 at DM923. Man managed to contain its losses to 10 pfennigs at DM478.75 thanks to a forecast rise in earnings this year. Deutsche Telecom came under pressure from competition concerns, losing 90 pfennigs at DM48.90 after telecoms rival Mobilcom forecast strong fourth-quarter trading.

Paris traded higher for most of the session, but swung into the red as Alcatel met with heavy selling. The shares fell steeply in heavy turnover of 1.4 billion French francs in the wake of the profits warning from Swedish telecoms equipment leader, Ericsson. They ended off FFr52 or 7.3 per cent at FFr665 after a session low of FFr660.

Speculation that the planned link between Rhone-Poulenc and Germany's Hoechst could be widened to include Clariant of Switzerland helped lift Rhone FFr7.10 to FFr287. The CAC-40 index closed off 25.64 at 3,746.97.

Amsterdam ended little changed after early gains at Philips were pared. The AEX index closed at 1,092.65, up 0.66.

Philips continued to push higher in early trading, rising to 133.50 guilders as the PolyGram disposal was completed, bringing Fl11.5bn in cash proceeds to the group. But the Ericsson upset rapidly reversed sentiment and the shares ended off Fl4.40 at Fl126.10.