The knock-on effect of the WorldCom scandal is pummelling other companies in the telecoms sector, sparking fears of a domino effect that could see other firms go under.

Stock prices are hitting historic lows across the board; Vodafone saw its shares fall seven per cent, while France Telecom and Deutsche Telekom dropped 17 per cent and eight per cent respectively.

Nokia's stock dropped five per cent and Ericsson fell nine per cent as confidence in the telecoms sector crumbled.

Alcatel suffered a double blow when its shares dropped 17 per cent just as it announced a profit warning and revealed plans to further cut costs.

The UK financial sector also took a battering from the WorldCom fallout. Insurance firm Prudential said it had a $150m exposure to WorldCom's debt, and Barclays announced that its exposure totals $100m.

Analysts have said that Royal Bank of Scotland, HSBC and Lloyds TSB are also likely to be hit in the wake of the announcement.

ABN Amro said it expects a provisioning of €100m, while Axa is expected to suffer a €40m exposure.

WorldCom has admitted that the $3.9bn in misrepresented expenses, which should have been visible on its income statement, was instead booked as capital expenditure, thereby overstating earnings.

As news of the fallout floods in, there are growing fears that the company may be forced to file for Chapter 11 bankruptcy protection.