Telecoms equipment group Alcatel, which briefly scraped lows of €18 on Monday following widespread broker downgrades, had another volatile session amid tentative acquisition speculation.

Initial trading was dominated by perceived bargain status with the shares, which stood at €72 in January, clawing back to €20.34. But a rumour that Alcatel was set to bid for Marconi, its deeply troubled UK rival, eventually sparked selling.

At the close, the stock was off 3.2 per cent at €18.82 in 11 million shares traded.

Telecoms operators dribbled back from early gains. An intriguing note from Deutsche Bank, which drew attention to the prospect of a big equity financing at France Telecom, did little to boost sector sentiment.

According to Deutsche Bank, France Telecom is heading for a year end debt-to-profit ratio of more than five and will need significant equity financing of around €20 billion to meet group target ratios of 2 to 2.5.

However, the sector spent most of the session adjusting to recent heavy share price losses. France Telecom dipped 0.6 per cent to €51.05. Deutsche Telekom hardened 0.7 per cent to €26.40. French optical components maker Highwave Optical put on 2.7 per cent to €6.15 as investors apparently welcomed the discomfort of its US peer, Corning, which is to cut 1,000 jobs, close three plants and take second quarter charges of about $5.1 billion because of the slowdown in the telecoms sector.

In the technology sector, German chipmaker Infineon dived 5.2 per cent to a record low of €24.60, weighed down by the impending capital increase and late weakness among its peers.

Airline stocks raced up the day's performance charts after Air France's commercial accord with Alitalia was given the go-ahead by the latter's board.

Sentiment on the sector was also boosted by solid June traffic figures from Air France. Alitalia rose 1.1 per cent to €1.45 and Air France 4.7 per cent to €20.11.