France's biggest listed bank BNP Paribas slashed its exposure to Greece, Italy and Spain by more than 12 billion euros ($16.6 billion) in the third quarter, contributing to a 72 percent slide in earnings.

BNP wrote down 60 percent, or 2.26 billion euros, of its sovereign exposure to the crisis-hit Greek economy, reflecting last month's pledge from private-sector creditors to write off a bigger chunk of their Greek debt, the bank said in a statement, though it added the plan was still "shrouded by uncertainty."

But even more striking was its move to cut its exposure to Italy -- which the bank has always insisted had a handle on its debt crisis -- by 8.3 billion euros, or 40 percent, and to Spain by 2.2 billion euros, or 81.5 percent.

"It was a surprise ... But it means much less peripheral sovereign debt and that's going to be taken well by the market," a London-based bank analyst said.

BNP Paribas shares trimmed early losses of up to 5.7 percent and were down less than rivals Credit Agricole and Societe Generale, which lost 4.8 percent and 5.4 percent, respectively.

BNP Chief Executive Baudouin Prot did not rule out a Greek sovereign debt default, telling Reuters Insider TV it would be "unpleasant" but manageable.

"I think that (BNP's provisioning) is adequate ... We will see as things go," he said, adding the sovereign debt selloff was a response to regulators' demand that banks mark their holdings to market values.

Separately, Dutch financial services group ING Group said it would cut 2,700 jobs at its Dutch banking operations to cope with a deteriorating market, which led to Greek and other impairments.

BNP's big balance sheet, its dependence on wholesale funding markets and its overwhelming European exposure make it among the most vulnerable to the euro zone sovereign debt crisis.

Following a 45 percent share-price drop since the end of June, the bank has announced sweeping asset sales that will be accompanied by job cuts, mainly at its investment bank.

"We will have some staff reductions as we implement the deleveraging plan," he said, later telling BFM radio BNP's cuts would be in the hundreds not thousands.

Banks such as JPMorgan Chase and Credit Suisse are shedding jobs worldwide as stricter regulations and a tough trading environment take their toll on investment banking units in particular.

The impact of disposals and the reduction in U.S.-dollar funding needs -- down by $20 billion in the third quarter and due to go down by the same amount in the fourth -- will lead to one-off losses of 1.2 billion euros, BNP said.

EURO ZONE DEBT SLASHED

Third-quarter net profit at BNP fell by 71.6 percent to 541 million euros, compared with a 991.9 million mean estimate of nine analysts polled by Reuters. Revenue fell 7.6 percent to 10.0 billion compared with a mean estimate of 10.48 billion.

The results bore the scars of a volatile quarter, with corporate and investment bank revenue down 39.8 percent to 1.75 billion euros. Capital-markets pretax profit was almost completely wiped out, while wealth and asset management pretax profit fell by nearly 50 percent in the quarter.

However, BNP's retail operations benefited from growth in western European markets and others like Turkey. Retail pretax profit rose by 22.8 percent.

"Underlying profit before tax was exactly in line with consensus as strength in retail offset weakness in corporate and investment banking," Nomura analyst Jon Peace wrote in a note. "The bank should deserve credit for strong underlying earnings power and de-risking measures of its balance sheet."

In addition to taking a Greece charge of 2.26 billion euros, BNP also booked extra losses after slashing its exposure to euro zone sovereign debt by 20.7 percent to 58.6 billion euros.

Prot said BNP had no plans to offload more sovereign bonds.

BNP's quarterly numbers were peppered with other one-offs, including a revenue gain of 786 million euros on widening spreads on BNP's own debt and a 299 million-euro writedown on its 5.2 percent stake in Europe's No. 2 insurer AXA .

The bank's core Tier 1 ratio, a closely watched metric of lenders' loss-absorbing capital, stood at 9.6 percent at end-September, unchanged from end-June.

French banks including BNP have promised to boost their capital levels by 8.8 billion euros without government help to reach tougher targets set by European regulators for mid-2012.

Although bonuses will likely come down in line with capital-markets profits, BNP could be at 9.1 percent core Tier 1 in mid-2012 without touching its dividend, CEO Prot said.

($1 = 0.725 Euros)

(Editing by Christian Plumb, David Holmes and Hans-Juergen Peters)