* Greek banking stocks plunge on ECB move
* Athens' ATG equity index down around 6 pct
* Swiss market falls as govt warns of impact of strong franc
* But Greek worries offset by ECB's new QE programme
By Blaise Robinson and Sudip Kar-Gupta
PARIS/LONDON, Feb 5 (Reuters) - Greek shares fell sharply on Thursday, pegging back European stock markets, after the European Central Bank abruptly cancelled its acceptance of Greek bonds in return for funding.
Greek banking shares sank, with the Athens Stock Exchange FTSE Banks Index dropping 14 percent, driving Greece's broader ATG equity index down by 5.9 percent.
Shares in National Bank of Greece fell 15.4 percent, while Bank of Piraeus declined 15.2 percent.
Those two stocks were the worst performers, in percentage terms, on the broader, pan-European FTSEurofirst 300 index , which fell 0.2 percent to 1,484.84 points.
The ECB's move, which means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in the coming weeks, was a response to what many in Frankfurt see as the new Greek government's abandoning of its aid-for-reform programme.
"Despite all the wishful thinking in Athens, the ECB has decided to use its veto. It's up to the Greek government now, and solutions have be found very quickly," said Mirabaud Securities senior equity sales trader John Plassard.
Southern European markets, which suffered the most along with Greece during the euro zone's sovereign debt crisis from 2010-2012, were among the most affected by the ECB's move.
Italy's FTSE MIB index fell 0.9 percent, while Spain's IBEX retreated 1.1 percent.
Switzerland's main SMI equity index also weakened by 1 percent, after the Swiss government warned that a rise in the value of the Swiss franc would impact the country's economic performance.
However, some traders said European stock markets were not being too badly hurt by the Greek situation due to the ECB's decision to start buying up government bonds - a process known as 'quantitative easing' (QE) - in order to spur the euro zone's struggling economy.
The ECB's decision to start a QE programme has weighed on the euro currency. This weaker euro has helped European exporters sell their goods overseas and made European shares cheaper for U.S investors to buy.
"In the short-term, Greece is a worry. But longer-term, people are looking towards QE, and the fact of the matter is that with this weaker euro, American buyers are coming in to buy up European shares," said Terry Torrison, managing director at Monaco-based McLaren Securities.
Today's European research round-up (Additional reporting by George Georgiopoulos in Athens; Editing by Toby Chopra)