World markets were today coming to terms with one of the biggest suspected corporate frauds in history.

Stock markets were sent into freefall yesterday and the confidence of investors was severely rocked by revelations of accounting irregularities at US telecoms giant WorldCom.

Last night, the US Securities and Exchange Commission (SEC) filed fraud charges against the firm after it admitted it had inflated profits by about £2.5 billion.

World markets slumped following the revelation by the US's second largest long-distance phone provider of what appears to be the biggest accounting fraud in US history.

In New York, the Nasdaq composite at one stage dropped below its lowest closing level in the weeks following September 11, while the Dow Jones industrial average plunged by more than 100 points to below 9,000 for the first time since October 10.

In London, £35 billion was wiped from shares as the market slumped almost 200 points in the first minutes of trading yesterday.

The FTSE 100 later made a partial recovery, closing down 100 points.

Germany's benchmark DAX index and Japan's Nikkei 225 index both fell by four per cent.

SEC Chairman Harvey Pitt said the agency had filed fraud charges against WorldCom in the federal district court in New York. The move was intended in part to keep the company from destroying information but other details were not immediately available.

US President George W Bush promised a full investigation into the latest accounting scandal to rock corporate America and send global markets into freefall.

He said he was deeply concerned about some US accounting practices.

World-Com announced 17,000 job losses worldwide in an attempt to salvage some of its business. It employs 4,000 staff in this country.