Shares of Societe Generale plunged as much as 23 percent amid a whirlwind of rumors questioning its financial solidity, before closing 15 percent lower after the French bank denied all speculation about its health.

Rumors of a downgrade of French sovereign debt, an expanded bailout for Greece that would hurt French banks and a government bailout of SocGen due to liquidity problems -- all denied -- pulled shares of France's second-largest bank down in the heaviest volume since the 2008 financial crisis.

SocGen Chief Executive Frederic Oudea dismissed the rumors as absolutely rubbish in an interview with CNBC television, adding that rumors about a downgrade of France's sovereign debt rating were very strange and contrary to the reality of the situation.

It was the latest stumble for SocGen, which was the weakest of the major French banks in Europe's stress test of its lenders last month. Investors have speculated it may have to raise about 3 billion euros to reach new global capital standards if the euro zone crisis worsens.

The bank -- still trying to rebuild its credibility after the Jerome Kerviel rogue-trader scandal in 2008 in which it lost 4.9 billion euros -- also issued a profit warning last week.

Other French banks also fell sharply on Wednesday, with BNP Paribas and Credit Agricole closing 9.5 percent and 12 percent lower, respectively, after sliding as much as 14 percent and 18 percent.

Between the three top French banks, nearly 10 billion euros ($14 billion) of market value was wiped out. SocGen stock has lost 45 percent over the past two and a half weeks, while BNP has dropped 29 percent and Credit Agricole has plunged 38 percent.

The Rumors on the French triple-A rating are having a catastrophic impact, despite the denial from credit agencies. Shorts are on a rampage; it's a calamity. This has nothing to do with fundamentals, said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.

The three major rating agencies confirmed on Wednesday their French sovereign rating outlook was stable, while Societe Generale categorically denied all the Rumors.

Wild trading of SocGen -- which suffered its steepest drop since the October 2008 -- and the other banks appeared to be inflamed by a perfect storm of Rumors fueled by Twitter postings, market blogs and a now debunked newspaper report.

SocGen's website cited an apology by Britain's Mail on Sunday for a story claiming the bank was in a perilous state and possibly on the brink of disaster.

We now accept that this was not true, and we unreservedly apologize to Societe Generale for any embarrassment caused, the newspaper said.

SocGen said it has asked French market watchdog AMF to investigate the origin of the Rumors.

PERFECT TARGET

Arnaud Scarpaci, fund manager at Agilis Gestion, told Reuters that after last week's profit warning the bank had become the perfect target.

SocGen last week warned that its goal of 6 billion euros in net profit in 2012, reiterated as recently as May, would now be difficult to achieve because of a tougher economic and financial backdrop.

Nevertheless, Scarpaci said, the weak earnings forecast hardly justified Wednesday's selloff, in which 28 million shares changed hands, the highest volume since the news of the Kerviel debacle broke in January 2008.

It was a deliberate attack from speculators. There were no real sellers out there. The flow wasn't going through regular brokers. Where is the regulator? How come they didn't suspend the stock? Short-selling has to be banned now, Scarpaci said.

Earlier on Wednesday, French President Nicolas Sarkozy summoned an emergency meeting with key ministers and the head of the French central bank for what his office described as a working meeting on the economic and financial situation.

Some investors later speculated SocGen officials were present at the meeting, but an official at the presidential office denied the bank had been involved.

Alban Tourrade, a portfolio manager at Aviva Investors, told Reuters that on top of talk about a downgrade of France's AAA sovereign rating came speculation about a new bailout plan for Greece that might be expanded to include bonds maturing in 2024, which would worsen the losses of French banks.

Later, Rumors started circulating about a bailout plan being prepared for SocGen and it being nationalized, which the bank has also denied.

The market is so risk averse right now that the smallest rumor, especially like the latter, makes everything plummet, said Tourrade.

French banks' credit default swaps were sharply wider, with BNP Paribas' five-year CDS widening 35 basis points to 246, Societe Generale's five-year CDS 65 basis points wider at 334, and Credit Agricole's 23.5 basis points wider at 265.

Although SocGen was the top decliner in the European sector <.SX7P>, down 6.7 percent overall, losses were again heavy in the Italian banking sector as well. Intesa Sanpaolo slid 13.7 percent, and UniCredit fell 9.4 percent.

SocGen's market capitalization has shrunk from 110 billion euros in April 2007 to just 17.2 billion euros today, placing it in the middle of the CAC40, dwarfed by companies like cosmetics maker L'Oreal and dairy producer Danone .

After today's drop the company is trading at a little over one-third of its book value.

(Additional reporting by Blaise Robinson, Matthieu Protard, Leila Abboud, Steve Slater, Dominic Lau, Alexandre Boksenbaum-Granier; Editing by Geert De Clercq and Steve Orlofsky)

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