FRENCH president Nicolas Sarkozy raced back from holiday for crisis talks on the country’s public finances yesterday amid swirling rumours of a sovereign downgrade and over the health of its number two bank Societe Generale.

Share prices in the US and Europe dived sharply as fresh fears of Eurozone contagion engulfed markets. French banks bore the brunt of the turmoil as Sarkozy recalled ministers and the central bank chief to Paris for emergency meetings.

Societe Generale crashed by as much as 23 per cent during the day on speculation – vigorously denied by the bank – that its huge exposure to risky Eurozone sovereign debt made it unsafe.

More rumours, also denied, suggested the bank had a representative at the Sarkozy meeting.

SocGen’s rivals Credit Agricole and BNP Paribas fell 11.8 per cent and 9.5 per cent respectively. The slump wiped almost €10bn (£6.1bn) off the three banks’ market capitalisation.

“With investors so nervous and markets so feral, any rumour or doubt seems to be getting amplified as volatility and fear increases,” said CMC Markets analyst Michael Hewson.

France’s triple A rating looked stable yesterday as all three major rating agencies affirmed it and French ministers said the government would stick to planned spending cuts.

But the market’s doubts put paid to hopes of a US market rally, cutting more than 500 points off the Dow Jones industrial average to leave it 4.6 per cent down at the close.

Gold prices also hit a new record of $1,801 as investors ploughed more money into the safe haven.

US banks took a battering, with Bank of America, Goldman Sachs and Citigroup each down more than eight per cent. Bank of America chief executive Brian Moynihan also faced a testing investor conference in an effort to shore up confidence in the bank.

SocGen denied all rumours of liquidity problems, despite writing down €395m on its Greek bond holdings after the nation’s second bailout.

The bank insisted on an online apology from the website after a weekend report claimed it was in financial difficulties.

Morgan Stanley analysts said France’s two biggest banks had no near-term funding fears.

“BNP is 100 per cent funded for this year and SocGen 93 per cent,” they said in a note.

The FTSE 100 ended 5.5 per cent down at 5,007.16.