Vodafone today launched an attack on the City and pledged to buy £1 billion worth of its own stock from the market following a heavy sell-off yesterday.

Shares tumbled 20¼p or more than 13% to a two-year low of 129p last night after the mobile phone giant admitted results would suffer as a result of the economic downturn.

It sent £11 billion off its market value and cast a shadow over Arun Sarin's swansong as chief executive before he hands over to new boss Vittorio Colao after more than five years in charge.

But Vodafone today said the share price "significantly undervalues Vodafone" and made a shock £1 billion share repurchase programme as it made its anger with the City plain to see.

"The board of Vodafone has considered the market reaction to the group's interim management statement and has decided to introduce a £1 billion share repurchase programme with immediate effect," it said in a statement to the stock market. "This action reflects the board's belief that the share price significantly undervalues Vodafone."

The shares rose 2.95p shortly after the start of trading today to 131.95p, valuing the company at around £70 billion, as Sarin and the firm made their point. However, analysts said the City was still disappointed with Vodafone's latest performance.

Vodafone, the biggest mobile phone company in the world, yesterday trimmed its full-year revenue forecast to the bottom end of the £39.8 billion to £40.7 billion range given in May.

It said mass redundancies in the construction industry and the return of migrant workers to their homelands resulted in falling mobile usage and hit revenues. Sarin said Vodafone was "not immune" to what was going on in the world economy.

Vodafone lost 27,000 of its 18.5 million customers in the cut-throat UK market, where revenues fell 4.4% in the three months to the end of June. It fared worse in Spain, which accounts for a fifth of Vodafone's European revenues.

The City had previously believed the telecoms industry and Vodafone in particular was recession-proof, because people would not stop talking or sending messages even in a downturn. Jonathan Groocock, telecoms analyst for Investec, said the results "shatter the widespread perception that Vodafone is immune in a slowdown".

Vodafone today said it will buy the shares at no more than 105% of the average closing price on the five preceeding days business on the stock market.

It already has shareholders' permission to buy back the shares, granted in July 2007. It looks set to be approved again at the company's annual meeting on 29 July this year.

Tom Gidley-Kitchin of Charles Stanley today said: "I think it is interesting they reacted so quickly. What it really means is that they feel the share price yesterday was a bit unmerited. The sell-off was overdone."

Morgan Stanley upped its rating on Vodafone to equalweight from underweight and set a target price of 170p. on the share.