Top French bank BNP Paribas plans to sell 70 billion euros ($96 billion) of risk-weighted assets to ease investor fears about French bank leverage and funding as its main rivals were hit by ratings downgrades.

BNP escaped Moody's Investors Service's review of French banks without a cut, but the credit rating agency said it would extend its review for a possible downgrade of BNP's long-term debt and deposit ratings.

"Surely it can only be a matter of time before BNP Paribas follows in their wake as the bank announces a restructuring plan to increase capital, probably in order to head off a downgrade at the pass," said Michael Hewson, market analyst at CMC Markets, referring to the Moody's downgrades of Societe Generale and Credit Agricole .

BNP shares were down 4.6 percent by 0828 GMT after earlier losing nearly 10 percent, as the European sector lost 0.5 percent. Credit Agricole was 1 percent lower, and SocGen was down 4.9 percent, having also been down 10 percent earlier.

French banks are fighting to restore confidence after suffering a sharp summer sell-off on the stock market, driven by concerns they are too dependent on wholesale market funding and would be ill equipped to cope with the fallout from a Greek debt default.

The industry's main regulator, Bank of France Governor Christian Noyer, called the Moody's downgrade of Credit Agricole and Societe Generale "very small", noting the ratings agency said the banks had enough capital to cover any losses.

BNP announced the move to cut its borrowing needs and reduce costs two days after smaller rival Societe Generale unveiled a similar plan as talk about a possible Moody's downgrade grew louder.

"These plans that have been announced in the last couple of days ... are things that we will certainly take into account with our review ... They effectively signal the impact of more fragile market conditions on banks' strategies," Moody's analyst Nick Hill said in an interview.

The main French banks have insisted, with Noyer's support, that they are financially strong and well funded, but some analysts insist they will ultimately need to raise capital, possibly with government backing.

"I haven't seen any bank in Europe managing to avoid capital raising through asset disposals, and I don't see why it should work now with the market at the bottom," said Antonio Guglielmi, an analyst at Mediobanca in London.

"I'm not a buyer of any asset disposal plan as a means to shore up capital levels. Not just for the French banks; in general, we've seen it doesn't work."

Earlier this week French Industry Minister Eric Besson said it was "premature" to talk about any kind of partial nationalisation of the French banking sector, as some experts have said may ultimately be needed.

Such a move would come at a heavy price for the French government, since it would further jeopardise the country's prized triple-A sovereign credit rating, already seen as vulnerable after Standard & Poor's downgraded the United States.  - Reuters