Standard & Poor's mistakenly announced the downgrade of France's top credit rating on Thursday, frightening investors already anxious over Europe's worsening debt crisis.

The erroneous alert, which S&P said was sent to some of its subscribers, fed concerns that Europe's debt problems had engulfed the region's second-largest economy. It contributed to the worst day for France's government bonds since before the euro was launched in 1999.

In a statement issued nearly two hours after the fact, S&P said the message resulted from a technical error and not from any action it intended to take against France.

French policy makers and regulators reacted quickly, worried that their efforts to maintain the credibility of France's finances were in jeopardy.

We will not allow any negative message to pass to the market, French Finance Minister Francois Baroin said on the sidelines of an economic conference in Lyon. We have a strategy, a commitment in terms of deficit reduction.

He called S&P's error quite shocking and asked regulators to investigate its causes and consequences. French financial markets regulator AMF opened a probe into the case right after that.

S&P INVESTIGATING CAUSE

S&P, which is already under fire from European policy makers over recent downgrades of government debt, has offered little explanation about the causes of the accident so far.

The ratings agency said it is investigating the cause of the erroneous message, which was automatically disseminated to some subscribers of its credit ratings website. It was not clear how many clients saw the message.

If recipients had clicked on the link in the alert, they would have seen that France's rating was unchanged, S&P's spokesman Martin Winn told Reuters by email. He declined further comment.

France still holds a top AAA rating with a stable outlook, it stressed.

But the clarification, published at 5:40 p.m. Paris time (4:40 p.m. British time), came too late for most European markets, which were already closed by then. The original message was published at 3:57 p.m. Paris time.

It also left many investors wondering whether it could be a sign that some negative rating action was in the works for France.

How does that type of thing happen? David Ader, head of government bond strategy at CRT Capital Group, asked in a note to clients. A test of the system, perhaps. In any event, it certainly raises a flag.

French bonds were hammered on Thursday. Yields on 10-year paper, which were already on the rise before S&P's mistake, spiked about a quarter of a percentage point, their largest jump since before the euro was launched in 1999.

When S&P's clarification hit the wires, the euro gained against the U.S. dollar, in a sign of investors' relief.

POLITICAL BACKLASH

S&P's mistake came at the worst possible moment for France, just as markets worry that the euro-zone debt crisis could spread to core European economies.

In an effort to show France has its finances under control, President Nicolas Sarkozy on Monday unveiled more than 18 billion euros of savings over the next two years to compensate for a slowdown in economic growth that is driving down tax revenues.

The additional fiscal austerity was also designed to protect France from a downgrade. Although the three largest agencies have a stable outlook on the country, Moody's has recently said it could revise that outlook to negative by early next year if the costs for helping bail out banks and other euro-zone members stretch its budget too much.

S&P's mistake also gives further ammunition to European regulators who have repeatedly called for tougher controls on the activities of the ratings agencies.

Michel Barnier, the European Union's top financial regulatory official, noted that the European Securities and Markets Authority will present next week new regulation on the credit ratings agencies.

It will strengthen the rules which apply to the ratings agencies, including ensuring they work in a framework which is both more transparent and with greater responsibility, he said in a statement on Thursday.

(Additional reporting by Daniel Flynn in Paris; Editing by Leslie Adler, Diane Craft and Bob Burgdorfer)