UPDATE 2-Citi, BofA, Goldman lead financial stock swoon

* Bank stocks plummet amid economy decline, France fears

* BofA, Citi off 7 pct, Goldman, Morgan Stanley down 8 pct

* KBW index of 26 bank stocks down 5 pct (Updates stock declines; adds analyst quote.)

CHARLOTTE, N.C., Aug 10 (Reuters) - The shares of Bank of America Corp (BAC.N), Citigroup Inc (C.N), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) skidded on Wednesday, renewing evidence that when the market sneezes financial stocks get pneumonia.

The S&P 500 was down 2.9 percent in mid-afternoon trading while BofA -- the biggest U.S. bank -- was off 6.6 percent and Citi was down 7.3 percent. Each had earlier been down close to 9 percent.

Goldman was off 7.8 percent shortly after noon, while Morgan Stanley shed 7.7 percent of its value. Even JP Morgan, considered one of the most solid large institutions, lost close to 6 percent of its value in morning trading before shaving almost half of the loss after CEO James Dimon said on CNBC that his company is not worried about its European exposure.

Stocks broadly were dented by renewed fears of a global economic slowdown -- which for banks can translate to curbed loan demand, reduced corporate appetite for growth through acquisition and falling investor appetite for risk.

Trepidation about the European debt crisis spread to French banks on Wednesday, leading a Societe Generale (SOGN.PA) spokeswoman to deny rumors of trouble, and had a spillover effect on US financial institutions.

Societe General, where U.S. traders have focused their attention, fell 21 percent and BNP Paribas SA (BNPP.PA) lost 13 percent. [ID:nLDE77912I]

"Bank stocks tend to reflect investors' outlook on the economy," said Jason Goldberg, a bank analyst at Barclays Capital. "Citi and BofA are two of the more global U.S. banks."

Goldman and Morgan Stanley, the two major investment banks that converted to commercial bank corporate structures during the 2008 financial crisis, also proved sensitive to investor concerns.

"The market appears to have concluded that the economy is in a downturn," said Brad Hintz, a Bernstein Research analyst who covers brokerages and investment banks. "A downturn would mean ... equity capital market ceases, new M&A falls and the average retail investor dives back into a foxhole."

The Wednesday share drop follows a market rally for financial stocks on Tuesday after the Federal Reserve signaled at least two more years of near-zero interest rates. Bank of America shares rose 16 percent on Tuesday, after dropping 20 percent on Monday. Citi shares rose 13 percent after a 16 percent drop the previous day.

Other banks also posted share price declines on Wednesday.

Wells Fargo & Co (WFC.N) shares were off 4.6 percent in mid-afternoon trading after falling earlier as much as 6.4 percent.

The KBW Bank Index .BKX declined 5.4 percent. (Reporting by Joe Rauch and Jed Horowitz; additional reporting by Lauren Tara LaCapra; editing by Andre Grenon)