After yesterday's rally, the financial markets are headed down again with French banking stocks plunging.

At 1353 GMT, Socieיte' Geיne'rale SA was trading down 17% at €21.61; BNP Paribas SA was 10.6% lower at €35.18; and Crיdit Agricole SA fell 9.7% to €6.22.

French banks have invested heavily in Greek government bonds. They may now have to carry them till 2024 before cashing them in. The cost of insuring French debt against default is soaring in comparison with insurance for German debt.

French president Nicholas Sarkozy interrupted his vacation in the Cote d'Azur on Tuesday, to meet with key cabinet ministers and the governor of the Bank of France. France is running a 6% budget deficit, inviting a downgrade from AAA ratings. France must now implement new measures to cut the deficit.

The deficit arose due to optimistic estimates of 2% economic growth this year, a figure the government had counted on in plotting its deficit-cutting policies. However, the earlier growth patterns were reversed in the second quarter and retreated to 0.3% ,down from 0.9% in the first quarter.

The Euro slid against major currencies in response to the bad news from France.