Vodafone today startled the London market with a decision to buy back £1 billion of its shares in response to the near-£11 billion wiped off its market capitalisation on Tuesday after a downbeat revenue statement.

The FTSE 100 rose 59.6 points to 5,423.7 in early trading after Vodafone's surprise warning on full-year sales yesterday wiped 40.2 points off the index of London's leading shares.

Vodafone shares, which yesterday fell by more than 13 per cent to 129p, rose by 5p to 134p today.

The mobile phone group's directors have taken the view that yesterday's fall in its share price was overdone. "This action reflects the board's belief that the share price significantly undervalues Vodafone," a statement this morning said.

The company has its shareholders' permission to buy back its shares, granted in July 2007, but this needs to be renewed at this month's annual meeting.

The purchase will be at no more than 105 per cent of the average closing price on the five preceding business days on the stock market.

Vodafone admitted yesterday that sales for the full year would now reach the bottom range of expectations.

Arun Sarin, Vodafone's outgoing chief executive, admitted that the company had been hit by a “more challenging operating environment” in Europe. “There's a big macro- economic picture that's playing through, and frankly, as a company, we're not immune to it,” he said.

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