Boost for Irish shares as global markets steady

Irish shares climbed by more than 4 per cent yesterday as investors took faith in suggestions that the worst of the credit crunch could be over.

The financial stocks were most in favour in a busy session, with AIB, Bank of Ireland, Irish Life & Permanent and Anglo Irish Bank all recording strong gains.

Construction-related stocks also saw a significant uplift, while the market as a whole closed 3.27 per cent higher after trading by 4.4 per cent at one stage.

Dublin dealers were undecided as to how long the rally would last, with one noting that rallies in bear markets can be "swift and quite aggressive".

"I don't think we're out of the woods just yet," said another.

The mood in global equity markets was cautiously optimistic as Wall Street paused for breath after hefty gains in the previous session and European stocks trimmed an early advance.

Weaker oil prices weighed on energy stocks on both sides of the Atlantic, offsetting fresh talk of further US interest rate cuts following grim news on the country's housing market.

Ed Yardeni, chief investment strategist at Yardeni Research,said the financial system had been sorely tested in recent months by questions about the extent of the credit squeeze, the likelihood of global recession and the response from central banks.

"We are starting to get answers to these questions, and the answers are encouraging as evidenced by increasing signs of normality in the credit markets, as well as the rebound in stock markets around the world," Mr Yardeni said.

"Also apparently reassuring to investors is that financial institutions are taking their earnings hits and marking down the value of their sub-prime mortgage portfolios and hung bridge loans."

Investors took the view that the worst might now be over for the beleaguered banking sector and drove the Dow Jones Industrial Average to a record high. By midday yesterday, the Dow had eased back 0.3 per cent, while the S&P 500 was down 0.2 per cent and the Nasdaq Composite was 0.1 per cent lower.

European stocks made modest gains, with the FTSE Eurofirst 300 index edging 0.3 per cent higher. There was no stopping rampant Asian markets as benchmark indices in Hong Kong, Singapore, Sydney and Seoul - among others - struck record highs.

In Tokyo, the Nikkei 225 Average rose 1.2 per cent to an eight-week closing high. Much of the new-found equity market bullishness has stemmed from the 50 basis point cut in US interest rates two weeks ago and the view that there is more to come.

Some analysts have warned against expecting further reductions in US borrowing costs.

"Fed officials had been known to argue, before the August setback in stocks, that the boost to household wealth from rising stock prices would offset whatever losses the retreat in home prices might inflict," said Stephen Lewis, chief economist at Insinger de Beaufort.

"This argument is regaining plausibility in the light of thelatest surge in US stocks."

On the currency markets, there was some respite for the dollar as talk of central bank intervention to stem its recent decline against the euro gathered pace.

The euro dipped back below $1.42 after a recent succession of record highs above that level. - ( Additional reporting Financial Times service)