MARKET REPORT:EUROPEAN STOCKS surged strongly yesterday on the back of the weekend announcement by the US government that it would take over mortgage giants Fannie Mae and Freddie Mac and the Dublin market was no exception.

The Iseq opened up sharply and held on to most of its gains throughout the day as it outperformed the other markets across Europe.

By the close of business the Iseq had jumped by 286.73 points to 4,569.05, a gain of 6.7 per cent.

Banks led the charge and were among the most heavily-traded stocks as investors returned to market on speculation that the US government decision would ease problems in the mortgage market and signal an end to the credit crunch.

However, some traders cautioned that the key test would be whether the rally could be sustained over the coming days.

"A big issue people will be watching over the next few days will be how the interbank markets react," said one broker.

Overall, financial stocks on the Iseq were more than 11 per cent stronger, with Irish Life Permanent putting in the best performance as it jumped by 12.7 per cent, tacking on 82 cent to €7.28.

AIB saw its share price rise by 11.5 per cent to close the day 91 cent stronger at €8.80, while Bank of Ireland added on 59 cent, a rise of 11.17 per cent to €5.87.

Anglo Irish Bank was 56 cent better off at €5.80, a gain of 10.7 per cent.

Construction stocks were also buoyed by the news from the US.

CRH was among the day's most heavily-traded stocks and closed among the biggest gainers. It advanced 9.76 per cent or €1.68 to €18.89.

Grafton also enjoyed strong trading as it added on 20 cent - a rise of 5.7 per cent - to €3.70, while Kingspan jumped 5.33 per cent, a rise of 41.5 cent to €8.20.