Wall Street confounded expectations that it would nosedive in the wake of Friday's shock profit warning from Compaq, opting instead to continue its climb into record territory after overcoming some early jitters.

The Dow Jones index of leading industrial shares opened sharply lower but eventually reversed these losses to close some 165.67 points higher at 10,339.51 giving heart to European markets which also rebounded from earlier lows.

However, shares in Compaq, the world's largest personal computer maker, fell by more than 20 per cent yesterday in the wake of a warning issued late on Friday that first-quarter profits and revenues would fall short of Wall Street estimates. Compaq said it expected a first quarter profit of about $0.15 a share, about half Wall Street's expectations.

However, the damage appeared to be limited to the company itself and others in its sector, as investors decided the brief downturn represented a buying opportunity rather than a time to sell.

"It's going to take more than a whack to kill this bull - he's old but he's powerful," one US stockbroker noted. "No one believes when the market comes down that it's anything but a buying opportunity."

Meanwhile, European share markets, including Dublin, clawed back some or all of their early losses as Wall Street held its nerve. The rally in shares also aided the dollar which had wobbled earlier on fears that international investors might be about to sell US assets.

The ISEQ index of Irish shares closed just six points lower as the market took comfort from Wall Street. Falling euro interest rates also lent support to Irish share prices as investors decided they could not afford to jettison equities to move money into low-yielding deposits.

In London, the FTSE index picked itself off its lows to end down 0.5 per cent from Friday's record close, only its second decline of the past 11 sessions. The index was led lower by losses in telecom stocks including British Telecom which shed 0.8 per cent.

French stocks also recovered from an uncertain start to close near Friday's record finish, shrugging off the US earnings jitters and taking comfort from Europe's favourable economic outlook.

In Germany, shares also ended higher as positive sentiment from last week's interest rate cut helped cancel out the weak start on Wall Street and a sharp fall in Deutsche Bank shares.