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The Dublin market recouped all of yesterday’s losses in a strong morning’s trade in which the financials enjoyed large gains.

At 12.29pm the Iseq index of Irish shares was at 5,097, up 187 points or 3.8 per cent.

Dublin-based analysts said it finally appeared that the market was emerging from an oversold situation.

One pointed to the tighter short-selling rules being imposed in the US that had helped to stabilise banking shares adding that banking stocks “are on fire, at last.”

Leading the way up was Anglo Irish Bank shares which added almost 10 per cent to €6.44. Analysts said the unwinding of Sean Quinn’s contracts for difference position and the taking of a 15 per cent stake in the bank by the Quinn family has reduced the stock available for short selling.

Irish Life and Permanent was not far behind adding 8.2 per cent to €5.90 at the mid-point while Bank of Ireland was 6.3 per cent up at €6.03. AIB shares added almost 6 per cent to €8.51.

Brokers said stake-building in certain firms, such as Grafton, was also boosting share prices, with the stock adding 2.6 per cent to €3.90.

The weakening oil price – it dropped to $126 a barrel today - provided a boost for airline stocks with Aer Lingus 3.3 per cent higher at €1.55 and Ryanair adding over 6 per cent to €3.34. This mirrored a strong performance today by other European airlines.

Stocks rose in Europe as Air France-KLM Group and DSG International led airlines and retailers higher as oil traded below $126 a barrel.

UBS AG and HSBC Holdings rose after Deutsche Bank AG said yesterday that financial companies are overcoming credit losses.

Yahoo jumped in German trading. The MSCI World Index added 0.4 per cent to 1,383.64 at 12.40pm in London as five of 10 industry groups increased.