By Kirstin Ridley and Jessica Hall

LONDON/PHILADELPHIA (Reuters) - Global markets reeled on Wednesday after U.S. long-distance carrier WorldCom Inc. shocked investors with its disclosure of a $3.8 billion accounting scandal, one of the largest in history.

WorldCom, the second-biggest U.S. long-distance telecoms group, on Tuesday night fired its Chief Financial Officer Scott Sullivan and said it would restate its results for the last five quarters, erasing all profits from the beginning of 2001.

The news further soured investor confidence after such once high-flying companies as energy trading company Enron Corp., telecom giant Global Crossing and conglomerate Tyco International crashed on a lack of accounting transparency.

"This is just another nail in the coffin of confidence," said Paul Marsch, a London-based Morgan Stanley telecoms analyst.

Stock markets reeled from Asia to Europe to the United States, with already beleaguered telecoms stocks touching new, historic lows. The specter of bankruptcy cast its shadow over WorldCom, once an aggressively acquisitive U.S. group whose stock appeared to defy gravity in the boon times of the late 1990s.

Trading in WorldCom shares, which peaked at more than $64 in 1999, was halted after they lost nearly all of their remaining value in pre-market trade, plunging to 9 cents a share. By 7:10 a.m. EDT on Wednesday 13.6 million shares had changed hands on Instinet since 7 p.m. EDT the night before, according to a trader there.

The scandal over how WorldCom falsely booked expenses to boost profits rocked shares of other telecommunications stocks, as well as equipment manufacturers, advertising agencies, banks and insurers which had exposure to WorldCom.

Tokyo's Nikkei stock average tumbled 4 percent to close at a four-month low, and the pan-European FTSE Eurotop 300 index .FTEU3> was off by a similar amount about 1 1/2 hours ahead of Wall Street's opening bell.

U.S. stock indices fell on the opening bell, with the tech-heavy Nasdaq falling 3.2 percent to 1378.74, and the Dow Jones industrial averaging tumbling 2 percent to 8947.61.

"They (investors) see problems in the U.S. and they say 'OK, I don't want to have as much exposure to the telecommunication sector'. So they sell. Not just WorldCom, not just U.S. stocks, but European and Asian and Japanese as well," said Kirk Boodry, an analyst at Dresdner Kleinwort Wasserstein.

WORLDCOM SCANDAL 'UNPRECEDENTED'

WorldCom, which already was under investigation by the U.S. Securities and Exchange Commission (SEC), said it discovered the accounting problem during a routine internal audit. The news could derail its efforts to secure $5 billion in financing, without which it may face a cash-crunch next year, or even bankruptcy, analysts said.

The Clinton, Mississippi-based company, which switched auditors from Andersen to KPMG this year, said it booked operating expenses such as routine network maintenance as capital investments, which allowed it to hide expenses, inflate cash flow and artificially post profits.

The SEC ordered a detailed report from the company, while The Washington Post newspaper said the Justice Department had begun a criminal probe.

"The WorldCom disclosures confirm that accounting improprieties of unprecedented magnitude have been committed in the public markets," the SEC said in a brief statement.

WorldCom promptly announced plans to axe 17,000 jobs, or more than 20 percent of its work force, starting Friday. The move will save about $900 million a year.

WORLDCOM CRASHES TO EARTH

WorldCom, whose colorful, cowboy-boot wearing former chief executive and co-founder Bernie Ebbers quit in April, burst on to the world stage in 1997 when the upstart made a unsolicited offer to buy larger peer MCI and wrest it away from Britain's BT Group Plc. Ebbers resigned in April, owning the company more than $408 million for personal loans.

Sullivan, 40, was credited with the plan to buy MCI and orchestrated the financial strategy that allowed WorldCom to use its once surging stock price to fund more than 60 acquisitions over a decade.

"When you look at the history of WorldCom, and their acquisition trail, you have a classic wheeler-dealer. And now this is the age were wheeler-dealers get called for what they are," said Frank Dzubeck, president of consulting firm Communications Network Architects.

Robertson Stephens downgraded its WorldCom recommendation to "market underperform" from "strong buy," saying a bankruptcy filing was "highly likely" within the next 12 months. "We regret that we must make this call when it is too late to help investors stem losses," the brokerage said.

Other analysts said the company, which has $30 billion in "junk"-rated debt, may avoid insolvency because it had blown the whistle on itself and moved quickly to fire Sullivan.

"Our senior management team is shocked by these discoveries," said John Sidgmore, WorldCom's CEO of less than two months. He previously served as WorldCom's vice chairman.

"The new CEO is not Bernie Ebbers," said Andrew Moffatt, head of telecoms research at ABN Amro. "The move is a clearing decks policy by the new CEO, and offers a clean break with the old management team ... Bearing in mind they have taken this action themselves, I would say they have calculated it pretty cleverly (to avoid bankruptcy)."

Much depends on whether WorldCom's secures $5 billion in financing. The company has $30 billion in total debt, but no debt payments are due in the next two quarters.

WorldCom is the latest company linked to auditing firm Andersen, which was convicted two weeks ago of obstructing a probe into Enron's collapse. Andersen audited WorldCom's financial statements for 2001.

But in a statement, Andersen said that WorldCom had withheld key information and not consulted its auditors about the accounting treatment of the expenses.

WorldCom suppliers got slammed by the news. Shares in Canada's Nortel Networks were dealt almost 11 percent lower in Frankfurt while Fujitsu Ltd., which is estimated to receive $40 million from WorldCom in revenues, saw its stock drop over four percent in Tokyo.

Germany's Siemens AG, whose communications unit ICN has WorldCom as a large customer, dropped 5.9 percent.