European regulators increased surveillance of financial markets and leading French bankers and officials scrambled to calm nerves after a two-day sell-off that has wiped billions off banks' market value.
None of the efforts appeared to settle markets jittery about the health of French banks and of the U.S. and European economies as they struggle to overcome debts.
The leaders of the eurozone's biggest economies, Germany and France, announced they will meet Tuesday to discuss solutions to Europe's financial difficulties.
Sarkozy's office said that the two will come up with "joint proposals" on the governance of the eurozone before the end of the summer. Merkel's spokesman Christoph Steegmans said the meeting would focus on suggestions for how to improve economic policy and crisis management for the euro zone.
The meeting was announced after France's top banker defended the country's banks following a two-day sell-off over investor fears about the bank's exposure to European government debt.
The renewed bout of jitters have come despite assurances from policymakers and credit rating agencies and highlights the anxiety among investors over Europe's attempts to deal with its debt crisis.
The head of France's central bank, Christian Noyer, blamed "unfounded rumors" for the plunge in shares of the country's top banks, including Societe Generale and BNP Paribas, and said the country's financial institutions were sound.
Noyer said that French banks' first-half earnings "confirmed their solidity in a difficult economic environment" and that the banks' capital cushions were healthy.
Volatile and nervous traders have ignored officials' repeated attempts to assuage their fears, and the stocks continued to drop in mid-afternoon trading.
France's market regulator warned Thursday of sanctions against anyone who fuels or profits from rumors that fed the sell-off.
The European Union's markets supervisor says European regulators are increasing surveillance of financial markets following several days of steep selloffs.
Greece on Monday already banned short-selling, but so far no other national regulators have followed suit.
In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share. The practice has been blamed for contributing to market volatility.
By early afternoon Paris time, BNP Paribas was down 2 percent while Societe Generale fell 5 percent, as assurances by government and rating agencies did little to assuage investor fears over banks' health.
France has become the latest to be caught in the debt crisis crossfire afflicting Europe, and its government is taking pains to assure markets that it won't be the next to see its credit rating downgraded.
Sarkozy cut short his holiday Wednesday and ordered his ministers to come up with new budget cuts to ensure that France sticks to deficit-cutting targets.
However, his return did little to soothe investor worries about the country's rating even though all three leading credit rating agencies reaffirmed their current triple-A assessment of France.
Analysts were left grasping to identify a single trigger for the sudden reversal.
"There's nothing behind it, it's a market of malintentioned speculators trading on pure rumors," said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.
"The market is in a phase of extreme volatility today so any news, even if it is not confirmed, is believed to be true," said Dominique Dequidt, fund manager at KBL Richelieu investment firm in Paris.
Societe Generale, France's second-biggest bank, bore the brunt of Wednesday's market skepticism as its share price became a massive victim of rumors surrounding its financial health.
In light of the turmoil, which saw the bank's share price drop nearly 15 percent Wednesday, the bank has asked the French market regulator, the AMF, to investigate the rumors that it was on the ropes because of its heavy exposure to debt from troubled eurozone economies.
Societe Generale CEO Frederic Oudea on Thursday called the rumors "totally unfounded" and "irrational." Speaking on France-Info radio, he urged calm and insisted that the bank's fundamentals are sound.
Oudea said Societe Generale had already accounted for its exposure to Greece's debts in its second quarter earnings.
"S&P is not going to downgrade France any time soon. Nor are Moody's or Fitch," Gary Jenkins of Evolution Securities said. "Growth will be the key to the stability of the ratings for France, U.K and the U.S. over the next 12 months."
He said there will be extra attention to France's release of second-quarter GDP figures on Friday, and warned that France could suffer if it has to spend significant new money to bail out more struggling eurozone states.
France's growth prospects are considerably better than those of Italy and Spain's, but its economic expansion is slowing and it's failed for years to reduce a deficit that stood at 7.1 percent last year. No other eurozone economy with a triple-A rating has a higher debt than France's — around 85 percent of national income.
Adding to market worries, French presidential elections scheduled for the spring of 2012 may make it difficult for the government to implement further austerity measures at a time when the economy is slowing.
Elsewhere in Europe, Greece announced a rise in unemployment after a series of unpopular austerity measures aimed at dragging it out of debt that sparked troubles across the eurozone.
And Italy's finance minister, Giulio Tremonti, told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget in 2013. The market turbulence has seen Italy's borrowing costs in the markets spike up to uncomfortably high levels.
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