Day of relief as banks regain lost ground

Market Report:Cursed by both the US subprime crisis and the Irish housing downturn, the Iseq index has had a painful week.

But it was blessed yesterday with a relief rally as investors who felt the major financial stocks had been oversold piled back into the market.

The traditional pre-holiday cheer in the US ahead of Veterans' Day on Monday also helped sentiment.

After a hideous few days, the banks regained some of their lost ground, with Anglo Irish Bank and AIB both up around 2.8 per cent, and Irish Life & Permanent up almost 2.5 per cent. Bank of Ireland made a less impressive gain, up 0.75 per cent.

Despite the positive day - the Iseq finished up 1.15 per cent - dealers said the market was still a cautious one as investors wait to see what will happen in the US.

After its economics team published a downbeat range of forecasts for the economy next year, analysts at Goodbody reduced their share price targets and earnings per share (eps) forecasts for each of the banks, paring back its 2009 eps forecast for Anglo by 9 per cent. It kept all of its buy recommendations for financial stocks intact.

CRH added 30 cent, closing at €24.40, as buyers returned to the stock. But building materials group Grafton fell 19 cent yesterday, to close down 2.8 per cent at €6.78, as Goodbody cut its earnings forecast. However, the brokers said the worst-case scenario for the housing market had already been factored into its share price.

Housebuilders McInerney, which Goodbody also downgraded after it revised down its forecast for house completions, promptly fell 4.8 per cent to close at €1.38.

Elsewhere, Independent News & Media and C&C both posted gains of more than 5 per cent..