WORLD financial markets bounced back yesterday after sharp falls on Friday as investors took a more sanguine view of comments by Mr Alan Greenspan, chairman of the US Federal Reserve.

Mr Greenspan had on Thursday spoken of "irrational exuberance in financial markets, leading traders and investors to fear that the Federal Reserve might raise interest rates to reduce the euphoria.

At one point on Friday, the US's Dow Jones Industrial Average shed 145 points, while in London the FTSE 100 Index was off 168.5 points.

But over the weekend, the markets seem to have reconsidered Mr Greenspan's comments.

Mr Joe Rooney, global strategist at Lehman Brothers in London, said the Fed chairman was posing "rhetorical questions" about what might happen if the bull market continued, rather than saying that assets were overvalued.

After a meeting yesterday of central bankers from the Group of 10 leading industrialised countries, Dr Hans Tietmeyer, Bundesbank president, said: "We feel to some extent there was an over reaction to a question and the markets seem to be stable again."

The US bond market was also relieved by employment data which pointed to a slowing economy, and firm Treasury bonds helped shares to rally.

At 1 p.m. in New York the 30 year Treasury bond was up by about half a point while the Dow Jones, which closed 55 points lower on Friday, closed up 82 points on 6463.94.

Asian markets were the first to show their relief yesterday with Tokyo's Nikkei 225 average gaining 1.6 per cent after Friday's 3.2 per cent drop.

A similar pattern was seen in Europe. At their worst on Friday, the leading European markets were down by between 4 per cent and 5 per cent. But by the close, they had cut the declines to about 2 per cent and yesterday they recouped about half of those losses. In London, the FTSE 100, which fell 88 points on Friday, gained 48.6 to 4011.6, while in Dublin the ISEQ rose 20.39 points after a fall of 46.21 at the end of last week.