Irish  shares closed modestly higher, giving up morning gains of more than 2 per cent as a sharp downward swing in British banking stocks put a brake on the sector in Dublin.

"The financials got off to a gallop this morning but the Irish banks retreated as European banks sold off. Basically, we had a strong morning followed by a weak afternoon," one dealer said.

After hitting €13.40 in early trade, AIB pared its gains later in the day to close just 11 cents higher at €13. Bank of Ireland got up to €12.25 before giving up all of those gains and closing 15 cents lower at €11.70.

Anglo Irish Bank fared better, closing 22 cents higher at €6.04, while First Active also gained ground, ending 30 cents higher at €5.

Northern-Irish pharmaceutical stock Galen proved the star performer in the industrial sector on the day, gaining more than 8 per cent to close at €5.70, 44 cents higher. The stock was buoyed by strong third-quarter results and reassurances from the company that concerns about hormone replacement therapy had not affected its sales.

Smurfit shares at last traded up to the level of the theoretical value of the Madison Dearborn bid as more than 80 per cent of shareholders backed the deal to take the company private. The stock finished seven cents higher at €3.03.

Gresham shares were down five cents, or more than 6 per cent, to €0.73 ahead of today's extraordinary general meeting, while other losers included Arnotts, down 60 cents at €9.30.

A strong gainer on the day was DCC, which added 87 cents to €10.50.