Alstom is a major player in the transport market

In early trade Alstom shares fell as much as 6%, but then recovered slightly to close down 4.46% at 3 euros.

On Monday morning, Alstom said it had followed up reports that losses on a US railway car contract were rather bigger than the US unit had acknowledged.

The reports were true, it said, having found that the unit had failed to admit to some costs in the expectation that they could be shifted onto other contracts.

As a result, Alstom will have to take a 51m euro charge in its accounts for the year which finished in March 2003 - effectively wiping out profits at the core transport business, which was one of the few parts of the company to stay in the black last year.

Investigation

The subsidiary's chief executive and finance director have both been suspended, and both the Securities and Exchange Commission and the FBI are looking into the matter informally.

The 51m euros is little compared to Alstom's overall financial situation, given the record loss the company recorded last year.

The company was in the red to the tune of 1.38bn euros as a result of unexpected expenses triggered by faulty gas turbines. Its shares are 75% down on the 12-month high of 11.55 euros marked in July last year.

But it is pulling itself around by offloading some of its assets, and is expected to complete the sale of its power transmission and distribution unit to French nuclear group Areva soon.

'Questions'

Still, despite Alstom's insistence that the incident is a one-off that is now dealt with, some analysts were less sanguine.

"In plain vanilla English, this is fraudulent accounting," Ben Uglow from Morgan Stanley told Reuters.

"It is evidence of sloppy internal control rather than systematic malpractice... but they cannot give the reassurance that this is an isolated case.