Wall Street stocks fell sharply on Wednesday, erasing most of the previous day's gains,

on fears of trouble in the French banking sector, which has significant exposure to shaky European debt.

U.S. financial stocks led the decline on worries any French bank problems could spread to them. The KBW bank index slid 7 percent. Large financial institutions fell sharply, including Bank of America Corp down 11.2 percent to $6.76.

A Societe Generale spokeswoman denied rumors of trouble, but French banks were hit hard in Paris trading. Societe General, where U.S. traders have focused their attention, fell 21 percent and BNP Paribas lost 13 percent.

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

Stocks rallied on Tuesday after the Federal Reserve promised to keep interest rates near zero for at least two more years. The S&P 500 index had its best performance in more than two years.

The Dow Jones industrial average dropped 422.73 points, or 3.76 percent, to 10,817.04. The Standard & Poor's 500 Index slumped 42.30 points, or 3.61 percent, to 1,130.23. The Nasdaq Composite Index lost 83.13 points, or 3.35 percent, to 2,399.39.

The CBOE Volatility index jumped 24.8 percent, representing the third session in the last five the index has seen a jump of at least 20 percent.

Walt Disney Co was among the worst performers on the Dow, tumbling 11.2 percent to $30.80 a day after the company's quarterly results failed to reassure investors the entertainment company could do well in a weak U.S. economy.

Even after Tuesday's snap-back rally, the S&P 500 is down nearly 18 percent since a peak at the start of May. Worries about the U.S. economy and high levels of public debt in Europe have sent stock cascading over the last two weeks.

(Reporting by Chuck Mikolajczak; Additional reporting by Ashley Lau; Editing by Kenneth Barry)