PARIS European equities could re-test 3-1/2 year lows next week as a dearth of earnings reports and the latest dose of Wall Street accounting scandals offer little incentive to venture back into bruised markets.

The announcement on Friday that U.S. office equipment company Xerox expects to restate revenues by about $2 billion over a five-year period jangled nerves still raw from U.S. telecoms giant Worldcom's $4 billion accounting scandal.

"After Enron, Worldcom and Xerox, people are asking, 'Who's next?' and are wondering when we'll get scandals like these in Europe, because we are bound to see such things emerging in Europe at one point or the other," Aurel Leven strategist Jean-Noel Vieille said.

U.S. President George W. Bush on Saturday called for rules and laws to "restore faith in the integrity of American business" in the wake of the corporate scandals, Reuters reported.

"No violation of the public's trust will be tolerated. The Federal government will be vigilant in prosecuting wrongdoers to ensure that investors and workers maintain the highest confidence in American business," Bush said in his weekly radio address.

Nagging corporate debt fears, elusive earnings prospects, export-hurting euro strength and also a lack of support from Wall Street -- closed for July 4th holiday -- could force markets to quickly erase this week's late rebound.

"Is the market purge over yet? I don't think so," Vieille said. "Accountancy and earnings fears are still here and price-to-earnings ratios in technology, media and telecom sectors are still relatively high." Investors have a couple more weeks to wait before the U.S. earnings season kicks off, with orthopedic device maker Biomet Inc. one of the few major firms set to report in the holiday-shortened week ahead.

The European index closed the first half of the year about 20 percent lower than where it started, and with earnings prospects still looking dim, markets may struggle just to finish the year unchanged.

Accounting Scandals Fallout Banking shares, which have so far escaped relatively unscathed, could become the market's next victims as investors fret over their exposure to heavily indebted conglomerates that might default on debt repayments, and to dwindling equities portfolios.

Banks like Deutsche Bank, BNP Paribas, Societe Generale or Banca di Roma could bear the brunt of investors' worries over the sector's exposure to companies sullied by accounting irregularities like Worldcom.

Other so-called defensive stocks like pharmaceuticals and autos could also come under pressure as a strong euro, near parity with the dollar, spooked many European exporters whose revenues are closely tied to the greenback's fortunes.

Investors will find little impetus to tiptoe back into European markets amid next week's quiet corporate diary across Europe. Upcoming mid-year earnings look unlikely to relieve investors, discouraged to see prospects of a pickup in profits postponed.

"We know we are heading towards second quarter results worse than the previous quarter's as consumer confidence erodes and business activity treads water," said CIC chief economist Valerie Plagnol.

Some companies might take advantage of bearish half-year earnings expectations to earmark additional provisions in their balance sheet, analysts said.

"Given that many analysts have given up on hopes to see a return to profits in 2002, some companies might think that....

they might as well load up their balance sheet with the amortization of intangible assets," Vieille said.

Large European groups, whose accounts still flummox investors even though there have been no accusations of malpractice, will therefore remain under close scrutiny.