World shares retreat on French jitters

French banks led European markets lower as shares of Societe Generale plummeted nearly 20 percent before trimming some losses to trade down about 14.5 percent. BNP Paribas dove about 10 percent, while the European banking index fared somewhat better, down 6.8 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, on Monday, the sharpest drop in nearly three years. US and European indexes tumbled more than 3 percent, while the euro dropped more than 1 percent against the dollar.

"Memories are fresh. I think people who during the last financial crisis did not sell right away, next time around are ready to sell quick and ask questions later," said Ed Crotty, chief investment officer at Davidson Investment Advisors in Great Falls, Montana.

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 turnaround in equities followed a morning of gains in Europe and Asia prompted by the US Federal Reserve's dovish promise on Tuesday that it would keep interest rates low for another two years.

The Fed's unprecedented commitment was double-edged. It sent the message to markets that the Fed is willing to keep things afloat but also acknowledges how much the US economy has weakened.

The Dow Jones industrial average dropped 422.05 points, or 3.75 percent, to 10,817.72. The Standard & Poor's 500 Index lost 42.34 points, or 3.61 percent, to 1,130.19. The Nasdaq Composite Index shed 83.11 points, or 3.35 percent, to 2,399.41.

The MSCI all-country world index, which has fallen as much as 20 percent from a May high, was down 2.2 percent after earlier gains.

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.

Copyright Reuters, 2011