German engineering group Siemens withdrew funds from Societe Generale in July because of underperformance, not fears over the French bank's financial health, a Paris-based source said on Tuesday.

The source told Reuters that the deposits at SocGen had been placed in an investment vehicle but was unable to say what the amount was.

Siemens withdrew funds (from Societe Generale) before the publication of the outcome of the (European banking) stress tests (in July), the source said. The withdrawal was for reasons related to performance and not to French bank issues.

Shares in SocGen were down 6.6 percent at 16.525 euros at 1432 GMT, underperforming the European bank sector index <.SX7P>, which was up 0.2 percent.

Fears over a Greek default and an eventual spread of the euro zone debt crisis -- with Italy the latest nation to have been hit with a credit-rating downgrade by Standard & Poor's -- have roiled European bank shares in recent months. French banks, perceived as relatively undercapitalized and dependent on wholesale short-term funding, have been hit hard.

That perception is also having business consequences for Europe's banks.

Bank of China, a big market-maker in China's onshore foreign exchange market, has stopped forex forwards and swaps trading with several European banks due to the debt crisis in Europe, three sources with direct knowledge of the matter told Reuters on Tuesday.

Another Chinese bank also said it had halted interest rate swaps trading with some European banks, indicating Chinese lenders had joined the growing ranks of institutions cutting exposure to the crisis-hit euro zone.

SocGen declined to comment on the Siemens withdrawal.

The German engineer said an earlier Financial Times report that it had withdrawn 500 million euros ($681 million) from an unknown large French bank two weeks ago, partly because of worries over its future health, and transferred them to the European Central Bank was factually incorrect.

GERMAN CARMAKERS

Meanwhile, banks operated by German carmakers said they had not moved cash to the ECB.

A spokesman for premium carmaker BMW said it was not a topic for the company, while Volkswagen's Financial Services unit said it had deposits with French banks and would stay put.

We're working together with strong partners in the banking sector and we are not depositing our cash at the ECB, a spokesman said.

What is hurting French banks this morning are fears of deposit withdrawals from a few big companies, a Paris-based analyst said. It's less of an issue for Credit Agricole, whose corporate financing activity is smaller than at BNP (Paribas) and SocGen.

Credit Agricole shares were down 1.6 percent, and BNP Paribas was down 4.7 percent.

SCRAMBLE

SocGen and larger rival BNP have scrambled to announce they will sell billions of euros in assets to free up capital and reduce exposure to costlier dollar funding.

BNP chairman Michel Pebereau told RTL radio on Tuesday that French banks, including BNP, had no need for new capital despite share price falls and a recent credit-rating downgrade of Credit Agricole and SocGen by Moody's.

We have no need at the moment for any recapitalization, he said. The banks are holding up well ... We do not need any type of aid today.

Asked whether Siemens had withdrawn deposits from BNP, Pebereau said: I do not know anything about this.

In total, Siemens has parked 4-6 billion euros at the ECB's facilities, mostly through one-week deposits, the Financial Times report said.

The FT quoted a person with direct knowledge of the matter as saying the group had withdrawn the money partly because of concerns about the future financial health of the bank and partly to benefit from higher interest rates paid by the ECB.

The FT quoted a person familiar with BNP as saying it was not the bank from which Siemens had withdrawn the funds.

($1=0.735 euros)

(Additional reporting by Caroline Jacobs and Juliette Rouillon in Paris, Kate Holton in London, Jan Schwartz in Hamburg, Edward Taylor in Zurich and Christiaan Hetzner in Frankfurt; Editing by Dan Lalor, Mike Nesbit and Will Waterman)

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