Wall Street stocks fell sharply on Wednesday on fears over possible trouble in the French banking sector that has large exposure to shaky peripheral European debt.

U.S. financial stocks led the decline as the KBW bank index slid 6.2 percent. Large financial institutions fell sharply, with Bank of America Corp down 12.2 percent to $6.93.

French banks were hit hard in Paris trading. Societe General, where U.S. traders have focused their attention, fell 16 percent. BNP Paribas fell 13.2 percent.

"France owns $350 billion worth of Italy's debt on their banks' books," Dave Rovelli managing director of U.S. equity trading at Canaccord Adams, who said fears of a failure in the sector were hitting U.S. markets.

The Dow Jones industrial average dropped 342.96 points, or 3.05 percent, to 10,896.81. The Standard & Poor's 500 Index fell 33.66 points, or 2.87 percent, to 1,138.87. The Nasdaq Composite Index shed 72.56 points, or 2.92 percent, to 2,409.96.

Indexes gave up much of Tuesday's snap-back rally. The S&P 500 is down nearly 18 percent since a peak at the start of May. Worries about the U.S. economy and high levels of public debt in Europe have sent stock cascading over the last two weeks.