Volatile market claws back €1.8bn of earlier losses

WILD SWINGS in the value of Irish stocks occurred again yesterday, as nervous investors took their jitters out on one of the Iseq index's biggest stocks, Anglo Irish Bank.

Anticipation that the US central bank, the Federal Reserve, was to cut interest rates prompted an overall improvement in sentiment during afternoon trading, with the Dublin market managing to close up 3 per cent. This meant it recovered around €1.8 billion of the €3.5 billion the market lost on St Patrick's Day.

But on a day when European financial stocks jumped by an average of more than 6 per cent, there was no bounce back for Anglo Irish Bank, which saw its share price hop from €6.15 to €7.28.

It eventually closed down just 5 cent at €6.90, but the performance meant it failed to claw back any of Monday's 15 per cent drop in the value of its stock - a share price decline described as "irrational" by Davy Research analyst Emer Lang.

The bank was punished by the general lack of trust in the banking sector, rumours that troubled US investment bank Lehman Brothers was placing a 2.4 per cent stake in the company with a third party and shorting by hedge fund managers, who took bets that the company's share price would fall further.

Dublin-based equities dealers described the markets as "choppy", "stormy" and "volatile", with even the slightest rumours sending share prices tumbling.

Even the success stories of the day, such as a 9 per cent climb in the share price of building materials group CRH, were achieved on a low volume of traded shares, suggesting that there is no widespread vote of confidence in the market.

The Federal Reserve's three-quarter point interest rate cut yesterday evening - its sixth interest rate cut since September - fell short of the 1 per cent that financial markets expected. The reaction of European markets to the move will be felt this morning.

Even before the Fed's emergency action, the mood on Wall Street brightened when investment banks Goldman Sachs and Lehman Brothers announced smaller-than-expected declines in profits, easing fears that the liquidity crisis that sank Bear Stearns could spread.

European stocks also bounced, as the battered banking sector recovered some lost ground. The FTSE Eurofirst 300 - which on Monday fell 4.2 per cent - rose 3.5 per cent.

The US banks' profits results easily surpassed expectations, and investors cheered comments from both about their liquidity positions.

"I think we feel better about our liquidity than we ever have," said Erin Callan, Lehman's chief financial officer. She added that the banks had not seen any erosion in confidence on the part of lenders or trading counterparties.

"Bottom line, the facts are better than the fears," said Susan Katzke, analyst at Credit Suisse.

- (Additional reporting, Financial Times service)