The bad news follows a string of profit warnings and downbeat trading statements from multinational companies around the world. On Wednesday Bass, the brewing and hotel giant, warned of an economic slowdown in the UK.
Other companies, including the Hilton hotel chain, razor group Gillette and BTR, the engineering giant, have disappointed the market in recent weeks.
The steady flow of bad news - which has now spread across all sectors of the economy - has prompted analysts to slash their profit forecasts across the board.
Some equity strategists now expect average UK company earnings not to grow at all next year.
One observer said investors were now looking for any excuse to sell their shares. "Anybody that comes out with any news that isn't absolutely fabulous is treated with great suspicion," he said. "This market is in no mood for what it sees as failure."
Alcatel produced the shock of the day. The French giant - which was one of the best-performing European stocks of last year - stunned investors with a warning that the economic crisis in Asia and Russia, combined with spending cuts by large European telephone companies, meant 1998 profits would not meet market expectations.
On the Paris bourse, trading in Alcatel was suspended seven times as the shares plunged. They eventually closed down 38 per cent at 571 francs.
Alcatel said increased competition for customers was forcing large telecom groups such as Deutsche Telekom and Telefonica to cut back on spending. Meanwhile, sales to the Far East and Russia had been hit by the economic downturn.
The warning knocked shares in other telecom equipment suppliers including GEC, which dropped 8 per cent at 424p. Shares in European suppliers such as Siemens, Nokia and Ericsson also slipped.
Meanwhile, shares in RMC, the building materials group, crashed to a five-year low after the world's largest producer of ready-mix concrete warned of a profit slowdown in its two major markets.
The company said that a slump in demand in Germany and a slowdown in the UK in the second half of the year will have a negative impact on its 1998 profits.
Peter Young, the chief executive of RMC, said the dire state of the construction industry in the former East Germany was set to deteriorate further as the post-reunification building boom ground to a halt.
The bearish comments prompted City analysts to slash their profit forecast for 1998 by up to 10 per cent to around pounds 285m from around pounds 310m.
The downgrades were accompanied by a bout of selling that wiped more than pounds 170m from the company's market value.
Shares in RMC, which will drop out of the FTSE-100 on Monday, closed 68p lower, at 682p. Shares in fellow building materials producer Blue Circle, due to report its results today, fell.