MORE than £560 million was wiped off the value of the Irish stock market yesterday as investors reacted negatively to recent heavy falls in US share prices and the expectation that the US market will fall further before it stabilises. Last night, the Dow Jones Industrial Average closed up 27.57 points on 6611.05.

A morning rally ran out of steam with the Dow slumping a further 60 points by lunchtime in the US only to recover in the final hour of the day to record a 0.42 per cent gain on the day. The early rally had been driven by a section of the market, which took the view that the 300-point fall in the Dow over the past two trading days presented an opportunity for bargain-hunting, although this view of the market was very much a minority one.

The fall in Dublin was matched by weakness on most international stock markets although the London market recovered from an early slump which saw the FTSE 100 fall more than 100 points before eventually closing down 64.8 on 4248.1. In Dublin, a heavy markdown of the major financial stocks resulted in a 2.3 per cent fall in the ISEQ Index which closed down over 69 points on 2927.21.

The selling pressure in Dublin, however, was heavily biased towards the two big banking stocks, with the result that the ISEQ Financial Index was down almost 3.4 per cent on 3386.62, a fall of over 117 points. The 25p fall to 605p knocked over £121 million off the value of Bank of Ireland alone while AIB's 18p fall to 415p meant that the value of the bank fell by £122 million.

Fear of further rises in interest rates is driving the US market lower, and the latest batch of economic statistics released yesterday has done nothing to suggest that the Federal Reserve will not increase rates at its May meeting.

While next Friday's non-farm payroll figures are this week's big economic indicator for the markets, the index from the National Association of Purchasing Managers provided no indication that the US economy is slowing down. The NAPM Index of 55 for March compares to 53.1 in February, indicating that American industry is continuing to buy components at a faster rate. Any NAPM figure above 50 is seen as reflecting a growing economy.

The index of leading indicators, a key economic forecasting gauge, posted its largest increase in a year in February, suggesting continued strong economic growth.

The Conference Board said the index rose by 0.5 per cent in February after a 0.3 per cent gain in January. The February rise in the index, which is designed to forecast economic activity six to nine months ahead, was the largest since a 0.9 per cent rise last February, the board said.

The February increase was slightly higher than the 0.4 per cent rise forecast by Wall Street analysts. The stronger-than-expected gain was the latest in a string of recent indicators suggesting the economy is picking up speed.

The Federal Reserve last week boosted short-term interest rates by a quarter percentage point, its first increase in more than two years, and cited the risk that strong demand might fire up inflationary wage and price rises.

Over the six months from August to February, the index increased by 1.1 per cent, the private business group said.