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In Paris, the CAC 40 stock index dropped 2.06 percent to 3,019.84 points, as official data showed the French economy recorded zero growth in the second quarter of 2011 after a robust 0.9 percent in the first.

Shortly after the open, London's FTSE-100 index of leading shares was down 0.70 percent at 5,126.81 points, with the short selling ban in the main continental markets having little apparent effect.

The Frankfurt stock market bucked the trend, bouncing back into positive territory as equity markets faced more choppy action. The DAX index of leading shares showed a gain of 0.87 percent to 5,847.99 points at around 0800 GMT, after initially falling as low at 5,678.62 points.

Milan stocks lost 2.5 percent in early trade but the FTSE Mib index then recovered some ground to show a loss of 0.73 percent at 15,166 points at around 0735 GMT.

Spanish share prices also slid into the red, rapidly losing feeble gains made at the open despite the short selling ban. After nine minutes of trade, the Madrid stock market's IBEX-35 index of leading shares had dropped 1.47 percent to 8,127.8 points, erasing the tentative gains of the first few minutes.

Belgian stocks were firmer, with the Bel-20 index of leading shares up 0.85 percent.

The speculative practice of short selling was being restricted in Belgium, France, Italy and Spain to combat "false rumours" that have destabilised the markets, European regulators said.

The European Securities and Markets Authority (ESMA) said the aim was "to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field, given the close inter-linkage between some EU markets."

The decisions were taken after securities regulators in Paris said the French stock market had plunged since Wednesday because of unfounded rumours, with the banks and Societe Generale in particular very badly hit.