The extraordinary volatility on the New York stock market yesterday is likely to be a forerunner for similar volatility on international stock markets in the weeks and months ahead. And the Irish stock market, miniscule in international terms, will not be immune from that trend. Yesterday, the Irish market fell sharply in early trading and at one stage the ISEQ Overall Index was down just short of eight per cent as prices of the leading shares tumbled in response to the opening 9.5 per cent fall in the London market and the overnight 14 per cent fall in Hong Kong.

At its lowest level, almost £2.7 billion had been wiped off the value of shares on the Irish market. At the close, the Irish stock market was still almost £2.5 billion poorer.

But while the London market and other European markets rebounded strongly once the early sell-off on Wall Street turned into a mid-morning strong recovery, the response in Dublin to the Wall Street recovery was muted.

"Those who held shares were simply not going to sell into the recovery." commented one dealer. The bid prices for the leaders, however, jumped sharply and the shares should regain most of the lost ground bar a renewed bout of weakness in the Far East and New York.

Blue-chip stocks suffered most from the selling pressure, with Allied Irish Banks down 45p to 535p, Bank of Ireland lost 75p to to 783p, Irish Life was 29p lower on 340p, while Irish Permanent lost 50p to 610p.

In addition, industrial shares fell heavily and CRH dropped 50p to 770p, Jefferson Smurfit lost 29p to 188p,and Kerry Group dealt down 50p to 790p. Ryanair suffered the biggest fall of any share on the market, tumbling over 20 per cent, its share price sliding 80p to 290p.

At the close in Dublin, the Irish market was still down by over seven per cent and the ISEQ Overall Index closed down 279 points on 3542.55, its biggest ever points fall. But the absence of a recovery in Dublin was in stark contrast to events on European stock markets and in London in particular.

The FTSE index of the 100 leading British shares moved from an opening collapse of 9.5 per cent to a closing level of down less than two per cent. This pattern of trading was mirrored on European markets where the Paris market recovered from a 10 per cent loss to close down 4 per cent while share prices in Frankfurt, which fell 13 per cent in early trading, were down less than six per cent after an after-hours burst of buying. But the same dealer warned that the major investors in the Irish market who have become accustomed to a protracted bull market will now have to become more specific in the stocks they select as many in the market believe that any renewed upward movement in the market will not necessarily be broad-based.

"If the market does start rising, it will be much more stock-specific and the banks are likely to be the ones to benefit," said one dealer. The fact that the major Irish financial shares have virtually no exposure to the Far East and are based in fundamentally sound Irish, Britain and American economies should mean that they will benefit more than most from a rebound in international markets.

The fact that the financial shares fell by eight per cent at their lowest yesterday compared to a six per cent fall in the industrials is more a reflection of the better liquidity in financial shares than in the industrials. Put simply, it is far easier to sell a line of AIB or Bank of Ireland shares on the Irish market that a similarsized line of Smurfit or CRH.

And there were clear indications that Irish fund managers were back in the market at the lower levels yesterday when AIB fell to 520p and Bank of Ireland fell to 760p. "It's the same bank we were bidding for last week at a pound higher," said one fund manager who told The Irish Times he had been back in the market for the financial shares at their lowest levels yesterday.

The further the financial shares fall, the more attractive they become in terms of their dividend yield and at the low point yesterday, AIB was yielding a gross 4.1 per cent based on the expected final 1997 dividend while Bank of Ireland was yielding 3.3 per cent. Most of the industrial shares do not offer anything like that assured return and most yield less than 2 per cent.