Global stocks slumped on Wednesday as risk appetite evaporated on speculation about the strength of French banks holding troubled peripheral euro zone debt, Reuters reported. The rumors tapped into investors' worst fears about possible contagion from the euro zone debt crisis and led European markets lower. French bank stocks were hit hard. The turnaround in equities followed a morning of gains in Europe and Asia prompted by the U.S. Federal Reserve's dovish promise on Tuesday that it would keep interest rates low for another two years. Shares of Societe Generale plummeted nearly 20 percent before trimming some losses to trade down 14.7 percent. BNP Paribas dove 9.5 percent. A Societe Generale spokeswoman denied all market rumors about the bank. Losses in bank shares also sent Wall Street lower following two days of extreme volatility that included the sharpest drop in nearly three years on Monday. U.S. and European indexes tumbled more than 3 percent. The euro dropped more than 1 percent against the dollar. Wall Street's favorite fear gauge, the CBOE Volatility index , jumped 17.7 percent after earlier rising more than 20 percent. It was the third session in the last five the index has seen a jump of at least 20 percent. Speculation France's AAA rating may be at risk initially rattled markets, though the three major agencies reaffirmed the top-tier rating. The jitters come after the United States lost its prized AAA status last week. The relief rally sparked on Tuesday by the Fed's commitment to low rates turned out to be short lived. Investors saw the Fed's message as double edged. The central bank signalled it was willing to keep the economy afloat. At the same time, it acknowledged how much trouble the U.S. economy was in. By midday Wednesday indexes had given up most of Tuesday's gains. The Dow Jones industrial average dropped 371.34 points, or 3.30 percent, to 10,868.43. The Standard & Poor's 500 Index lost 35.90 points, or 3.06 percent, to 1,136.63. The Nasdaq Composite Index shed 67.09 points, or 2.70 percent, to 2,415.43. The MSCI all-country world index, which has fallen as much as 20 percent from a May high, was down 1.8 percent after earlier gains. The FTSEurofirst 300 of leading European shares provisionally closed down 3.8 percent. The euro last traded down 0.9 percent at $1.4235, after sliding to a session low of $1.42080 on trading platform EBS. It also lost 1.8 percent to 108.83 yen. Switzerland's central bank said it was expanding measures to fight the Swiss franc's strength. Investors have been pouring into the currency as a safe haven during recent market and economic weakness. The search for safety drove investors into U.S. Treasuries and gold. The benchmark 10-year Treasury note was up 21/32 in price after briefly posting a full point gain, its yield falling to 2.17 percent, down from 2.24 percent late on Tuesday. The 30-year Treasury bond was up 2-3/32 in price to yield 3.53 percent, down from 3.68 percent at Tuesday's close. Gold racked up a third record in a row, extending its best rally since 2008. Spot gold rose near 3 percent to hit a high of $1,796.86 an ounce and was up 2.3 percent at $1,784 at midday. -- SPA
