Black Wednesday follows black Monday

The US and European markets plunged on Wednesday on worries about weakening US and European economies.

Fears have been mounting about the possibility of France downgrade though it denied the rumours doing round in the markets.

Wall Street stocks fell sharply on Wednesday on fears over possible trouble in the French banking sector that has large exposure to shaky peripheral European debt.

US financial stocks led the decline as the KBW bank index slid 6.2 per cent. Large financial institutions fell sharply, with Bank of America Corp down 12.2 per cent to $6.93.

French banks were hit hard in Paris trading. Societe General, where US traders have focused their attention, fell 16 per cent. BNP Paribas fell 13.2 per cent.

"France owns $350 billion worth of Italy's debt on their banks' books," Dave Rovelli managing director of US equity trading at Canaccord Adams, who said fears of a failure in the sector were hitting US markets.

The Dow Jones industrial average dropped 342.96 points, or 3.05 per cent, to 10,896.81. The Standard & Poor's 500 Index fell 33.66 points, or 2.87 per cent, to 1,138.87. The Nasdaq Composite Index shed 72.56 points, or 2.92 per cent, to 2,409.96.

Indexes gave up much of Tuesday's snap-back rally. The S&P 500 is down nearly 18 per cent since a peak at the start of May. Worries about the US economy and high levels of public debt in Europe have sent stock cascading over the last two weeks.

French shares were showing a drop of 4.75 per cent in mid afternoon trading on Wednesday led by banking shares, and the CAC 40 index stood at 3,032.58 points.

Sentiment was hit by renewed concerns about the Greek debt crisis and talk of a possible downgrading of the French credit rating, denied by the French government, as US stocks fell in initial trading.

At ETX Capital in London, trader Manoj Ladwa told AFP that there were "credit rating concerns on France -- but all rating agencies have confirmed triple A and outlook as stable".

He added that there was also market speculation that French President Nicolas Sarkozy was set to propose a new tax on the country's banking sector.

The Frankfurt DAX index of leading shares fell by around five per cent on Wednesday on renewed concerns on the Greek debt crisis and amid rumours of a French downgrade.

The DAX showed a loss of five per cent at around 1425 GMT, mirroring steep slumps seen on Monday and last week.

German stocks had resisted a bloodbath on Tuesday and had even begun trading on Wednesday with a gain of 2.0 per cent.

Spanish share prices plunged 4.70 per cent in afternoon trade Wednesday on concern that the eurozone crisis is widening to ensnare France.

The IBEX 35 index of leading shares on the Madrid stock exchange dropped 4.70 per cent to 8,032.9 points.

"It seems that the market is focussing on the French banks' exposure to Greek debt," said Soledad Pellon Bannatyne, market strategist at Spanish brokerage IG markets.

"There was also a second rumour on France that Standard and Poor's may downgrade its AAA-rating," Pellon said. France's finance ministry categorically denied the rumour of a downgrade.

Greek Finance Minister Evangelos Venizelos said an exchange of state bonds with the private sector under a debt rescue might include government debt maturing slightly beyond the target date of 2020.

He also said the debt swap procedures had not yet begun.

Italian stocks crashed by more than six per cent on Wednesday amid fresh doubts on eurozone markets over financing for Greece and as Italy prepared to unveil much-needed structural reforms to slash budget deficits.

At 1424 GMT, the FTSE Mib index in Milan was down 6.12 per cent falling below the 15,000-point threshold to 14,760, with bank shares particularly hard hit.

The boost from a successful bond issue on Wednesday in which Italy raised 6.5 billion euros at lower rates than last month failed to halt the plunge.

The Milan stock exchange had opened on a positive note with a rise of 2.8 per cent following US Federal Reserve comments on Tuesday that it envisages keeping interest rates ultra-low for another two years.

Analysts said that banks were dragged down after an announcement by Greece that cast doubt on its rescue plan and the situation for private creditors.

Banks shares weight heavily on the benchmark FTSE Mib index.

London was down more than three per cent.

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