But the shares, having fallen 85 percent from a high point to little more than the issue price, rallied slightly.

Dealers drew encouragement from promises of huge asset sales to slash debt and help from the state, which still owns 55 percent and is to take stock as dividend instead of precious cash The company, a flagship of privatizations in the 1990s, reported a net loss of 8.28 billion euros (7.33 billion dollars) for 2001 because of a fall in value of assets bought at the height of the high-tech boom.

The loss, reflecting problems in the indebted European telecom industry following the high-tech bubble, compared to a net profit the previous year of 3.66 billion euros.

But chairman Michel Bon reassured that recovery was on the horizon for this year, saying: "We are not preparing to announce losses."

The shares rose by 2.65 percent to 33.67 euros in midday trading, but were about 85 percent below the all-time high point of 219 euros in March 2000.

Shares in the company were first issued in October 1997 at 182 French francs (27.75 euros) and have attracted about 1.6 million small shareholders, many of them employees who also have the status of civil servants.

The bursting of the Internet and mobile-phone bubble has led the company writedown 10.21 billion euros in assets for last year to cover the depreciation of their value.

Excluding the exceptional writedowns, the company reported a net profit of 1.93 billion euros for 2001.

Core earnings rose by 14 percent to a record 12.32 billion euros in 2001 from the previous year. This figure was in line with analysts' forecast that ranged from 11.91 billion to 12.99 billion euros.

Bon said he expected double-digit growth in sales this year, and faster growth in core earnings "as our newer businesses gradually become mature."

The company, which had net debt of 60.7 billion euros at the end of last year, announced plans to sell assets to reduce debt which it built up by spending heavily on acquisitions and for next generation mobile phone networks at the peak of the tech bubble.

In a blow to its once grand plans to expand widely over Europe, France Telecom said it would sell a 26.6-percent stake in Italian operator Wind, as well as stakes in TDF and in satellite consortiums.

It would also shed non-core assets including stakes in STMicroelectronics, and Sprint PCS, France Telecom treasury stock, TPS, cable networks, a second batch of real estate disposals and sale of receivables.

Asset sales last year had helped the company skim 2.7 billion euros from debt and sales this year would reduce it by a further 17 billion euros.

One trader here said: "The debt level is little better than expected, and the asset sales are certainly better than we were looking for."

Chairman Michel Bon said the company should be able to cut down its mountain of debt to 44.8-58.3 billion euros by the end of next year and that the level should fall by 2005 to 33.2-49.7 billion euros.

The group announced a dividend of one euro per share and said shareholders could opt to take the dividend in shares.

The ministry of finance said that, as the majority shareholder in France Telecom with a 55-percent stake, it would vote in favour of the plan and take its dividend payments for 2001 in shares.

"The government taking its dividend in stock is good news," the trader said, adding: "It seems the French government is doing everything in its power to help the firm out."

With presidential elections in two rounds in April and May, the Socialist-led government is eager not to be seen neglecting French industry, and last week it rescued computer group Bull.

France Telecom took a 3.19-billion-euro provision for its exposure to German mobile operator MobilCom, with which the French company has been waging a battle over the costs of next generation mobile phone networks.

In Germany, a spokesman for MobilCom told AFP that that founder and chief Gerhard Schmid had exercised an option to force France Telecom to buy from him 33 percent of the company, leading Bon to accuse Schmid of posturing.

France Telecom currently holds a a 28.5-percent stake in MobilCom.

However, the trader said: "I think the ideal solution would be to try and put Mobilcom into bankruptcy. There would be a massive one-off charge, but they'd be able to put this sorry issue to bed."

Other provisions included 4.58 billion euros for NTL, 2.08 billion for Equant and 360 million for Telecom Argentina.

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