AROUND €3 billion was wiped off the value of Irish shares yesterday as the Dublin market went into freefall.

The Iseq index of Irish shares tumbled through the landmark 4,500 level, closing nearly 6 per cent, or 271.81 points down, at 4,414.80.

Banks were among the biggest fallers as global financial stocks took a hammering on the back of concerns over the capital position of US mortgage giants Fannie Mae and Freddie Mac. Investors on both sides of the Atlantic were rattled by reports the US government was considering taking over the home finance providers.

"Irish banks took an extra hit because of general negative sentiment towards the Irish economy," said one broker.

International investors have taken the view that there is no good news going to come out of the Irish economy for at least a year, said another. "The guys in London and New York have made up their minds," he said.

There were few buyers in the Irish market, with sellers dominating, said another trader. "It was pretty much one-way traffic all day," he said. "The US is dictating where we are going but Ireland is certainly unloved at the moment."

Among the financial stocks, AIB was the biggest casualty with nearly 10.5 per cent wiped off the value of its shares. It eventually closed the day 86 cents weaker at €7.35.

Irish Life Permanent shares dropped by 8.9 per cent, or 42 cents, to €4.30, while Anglo Irish Bank was 8.7 per cent weaker at €4.428. Bank of Ireland lost nearly 5.9 per cent of its value as it shed 29 cents to €4.65.

Other headline stocks tumbled. Ryanair was hammered as oil prices spiked again and the stock eventually closed the day more than 5 per cent weaker at €2.53.

Market heavyweight Elan, which had been enjoying a good run for the past week, lost more than 4 per cent of its value to close the day at €22.49, while Paddy Power was 6 per cent weaker at €17.27.

Drinks company CC endured a miserable day as it revealed that its four months' trading to June was down 8 per cent. The stock traded down 20 per cent at one stage before eventually closing 11 per cent weaker at €2.42.

Food company Greencore was the worst performing stock on the day as its share price plummeted 13.6 per cent on light enough volumes. Its performance yesterday summed up the problem facing many Irish shares in the current market, said one trader. "Liquidity is so bad in the market, it doesn't take much to move one stock by 10 or 20 per cent," he said.

The Irish market was the worst performing in Europe by a long way, but other European markets suffered as European stocks fell as record oil prices hurt automakers and airlines and concerns over Fannie Mae and Freddie Mac hit the banks.

National benchmark indices retreated in all of the 18 western European markets. Germany's DAX Index fell 1.9 per cent this week. France's CAC 40 lost 3.9 per cent and the FTSE 100 slipped 2.8 per cent.