AIB surged by more than 3 per cent to an all-time high of £11.50 as the Irish stock market clawed back most of this week's earlier losses yesterday.

An early rally on Wall Street, after the US employment report for July calmed fears of wage inflation, helped European markets to perk up after the turbulence of recent days and Dublin followed the general trend. But the US market ran out of steam later in the day after European markets had closed. After an initial surge of more than 100 points, the Dow Jones index lost ground to eventually close just 20 points or 0.24 per cent higher.

The slippage came too late to have any impact on the Dublin market, however, and the ISEQ index of Irish shares regained more than £800 million in value as it soared by 1.8 per cent.

AIB's 36p jump was one of the market's main drivers. The bank, which was buoyed by strong firsthalf results released earlier this week, is now within spitting distance of a market capitalisation of £10 billion.

Bank of Ireland also moved up strongly, adding 26p to £14.03. However, the strength was mainly confined to the leading stocks, particularly financial shares, as investors stayed clear of secondline stocks given the recent market volatility.

Other European stock markets also responded favourably to the Dow's positive opening. In Britain, the FTSE 100 gained 1.5 per cent while Continental European markets also recovered from the fallout of Tuesday's 300-point fall on Wall Street. German shares gained more than 1 per cent while the Paris stock index closed above 4,000 for the first time since Tuesday's 204-point swing.

But the Dow, which has fallen sharply in the past three weeks on worries over company profits and the impact of the ailing Japanese economy, slipped back later in the day as the technical damage caused by recent falls and worries over Asia took their toll and erased much of its earlier gains.

These had been triggered by the release of the July non-farm payrolls which showed that wage pressures in the US remain muted.

The data showed that average hourly earnings grew by just $0.03, slightly below market expectations. The figures also showed an increase of 66,000 in non-farm payrolls in July, well below June's gain of 196,000, but the data was affected by an eight-week strike at US car giant General Motors.

GM's operations were brought to a virtual standstill last month by two strikes at parts plants and this cut the overall payroll figure by 140,600, the US Labour Department said.

Initially, the jobs data obscured other issues facing the stock market such as car-bomb attacks on US embassies in Kenya and Tanzania, the unfolding White House drama involving Monica Lewinsky or concerns about Asia where talk of possible devaluations in Hong Kong and China sent Hong Kong shares to three-and-a-half year lows.

The weakness of the yen and worries about China's slow economic growth have triggered fears that the Chinese authorities could be forced to devalue to boost exports, a move that could put further pressure on the beleaguered region.

"There is a certain amount of speculation that the Chinese will devalue at the weekend," said Mr James McKay, chief European economist at Commonwealth Bank of Australia in London.

The yuan, normally confined to a tight range, swung across a relatively wide band, though it clawed its way back above the key 8.2800 level with the help of buying by state banks. China has persistently said it will not devalue.

The uncertainty has triggered renewed speculative pressure on the Hong Kong dollar which took a further battering yesterday. Market experts said attacks this week on the Hong Kong dollar rivalled the last attack in October, when overnight interest rates soared to 300 per cent. But Hong Kong Chief Executive Tung Chee-hwa said maintaining the Hong Kong dollar's peg to the US dollar was an unchangeable policy.