French police shot and wounded a man claiming to be a member of al Qaeda on Wednesday after he took four hostages in a bank in the southwestern city of Toulouse, two police sources said.

The hostage-taker was shot in the leg when he emerged from the bank with one hostage prompting him to shelter inside, they said. Police then stormed the bank and arrested him, freeing the last two of an initial four hostages he had taken.

The man, known by police to have a record of psychological problems, had earlier released two female hostages after receiving food and water in the early afternoon.

The other two hostages freed during the assault were in good health, the police sources said.

Aged 25-30 years old, the man took the hostages, who included the bank manager, in a branch of French bank CIC around mid-morning and fired a shot after an attempted armed robbery apparently went wrong, UNSA police union official Cedric Delage said.

The man said he was not acting for money, but for religious reasons, Prosecutor Michel Valet told reporters.

It was the latest drama to hit the Toulouse region after a young al Qaeda-inspired gunman shot dead three soldiers, a rabbi and three Jewish children in March.

The hostage-taker had asked for the elite RAID commando unit to come to the scene - the same squad which shot dead 23-year-old gunman Mohammed Merah in March after a long standoff at his home, which was just meters from the site of Wednesday's siege.

'By choosing to carry this out where the Merah affair took place, it shows that this makes sense for him and has a particular symbolism,' said Christophe Caupenne, a former commando at the RAID. 'The Merah affair was a psychological trigger for him so at some point he would act.'

Toulouse, a university town which does not have a reputation as a hotbed of religious or militant tension, has seen a number of short-lived hostage situations in recent weeks, including a drama last week at a local weather forecasting office, but none resulted in casualties.-Reuters