Mr Clinton had been the star defence witness in the trial, but the Little Rock jury disregarded his testimony and convicted the defendants on multiple charges involving a £2 million fraud.

The verdicts were a humiliation for Mr Clinton and an embarrassment for the White House, which had argued that the charges were without merit and politically motivated by a Republican prosecutor.

The result could raise questions about Mr Clinton's character and may embolden Kenneth Starr, the Whitewater special prosecutor, to bring more charges.

Indictments could now extend to Mrs Clinton, and even, conceivably, to the President himself. Mr Clinton looked unsettled when he appeared in the White House garden. He said he was "very sorry" on a personal level that his former associates had been found guilty, but would not let it interfere with his duties.

A terse White House statement noted that Mr Clinton had been a witness, not a defendant, adding: "The President had nothing to do with the allegations that were the subject of the trial."

Mr Clinton had testified before video cameras in the White House. The convictions suggest that the jury did not find his testimony compelling.

The prosecution alleged that Mr Clinton was instrumental in securing a government-backed loan of £200,000

Jim Tucker, the Democrat who succeeded Mr Clinton as governor of Arkansas, was convicted on two out of five charges. He said later that he would resign. James McDougal, the President's partner in the original Whitewater land investment, was convicted on 18 of 19 counts of fraud.

Susan McDougal, Mr McDougal's former wife and the fourth partner in the Whitewater investment, was found guilty of all four charges against her.

Her conviction was the most significant, for it pitted her word directly against Mr Clinton's.

The charges related to a firm that she had set up called Master Marketing, which the prosecution said was a front company to procure government loans intended for disadvantaged people. The prosecution alleged that Mr Clinton was instrumental in securing a government-backed loan of £200,000. David Hale, who spent almost two weeks in the witness box, described a series of land exchanges, falsified loan applications and bogus deals designed to enrich the three defendants.

Mr Hale, a former judge, said that in 1986 Mr Clinton, while governor of Arkansas, had pressed him to approve the loan, part of which was eventually diverted into the Clintons' Whitewater Development Corporation to pay off bad debts.

Under oath, Mr Clinton testified that he had never spoken to Mr Hale about the loan, or any other financial transactions.

Politically, the timing could not be worse with less than six months to go before the presidential election

The White House had described Mr Hale as an unreliable witness and a proven liar. He has himself been sentenced to 28 months in prison for fraud and his testimony was part of a plea-bargain. Even so, the jury appears to have found him a credible witness.

Yesterday's developments breathed life back into the wider Whitewater scandal which the American media had almost written off as a diminishing threat to the White House.

Sources say the Starr investigation will now move into a higher gear. Mr Starr's team of prosecutors is examining Mr Clinton's involvement in the £200,000 loan, and Mrs Clinton's links to an unrelated investment known as Flowerwood Farms Development.

Politically, the timing could not be worse with less than six months to go before the presidential election. The Republicans had been losing interest in the Whitewater affair, but the convictions will encourage their investigations.

Earlier in his campaign, Senator Robert Dole, the Republican candidate, had been making an issue of Mr Clinton's "character problems". These attacks are likely to intensify.