Abbey National's merger talks with Bank of Scotland, which has a mortgage-lending service in the Republic, helped pushed Irish bank stocks higher yesterday.

Shares on the ISEQ index added 0.12 per cent to close at 5,879.31 and financials, which gained 1.27 per cent, led the chase. General stocks incurred modest losses, declining by 0.34 per cent.

The merger talks underlined the possibility of financial sector consolidation in a week when bank stocks were in favour after a lengthy period of decline.

AIB's 20-cent rise to €12.20 and Irish Life & Permanent's 11-cent gain to €12.20 as more than 1.18 million shares changed hands led both to year highs. Bank of Ireland finished eight cents stronger at €9.00.

Among smaller stocks in the sector, Anglo-Irish added four cents to close at €2.81, while First Active, the troubled mortgage-lender, finished seven cents ahead at €2.15.

Elan, which accounts for more than 20 per cent of the index, gained 10 cents to close at €60.90 a day after a US firm Inhale Therapeutic Systems dropped its bid for Quadrant Healthcare. Quadrant has now accepted Elan's counter-bid, which values it at £52.3 million.

Shares in Eircom, which is fielding separate bids for its fixed line and mobile businesses, eased 10 cents to €3.25. Shares in Vodafone, which wants to buy Eircom's mobile susidiary, Eircell, closed unchanged after losing 8 per cent on Thursday amid concerns over its earnings outlook. Iona Technologies continued its upward move, gaining €1.20 to finish at €83.20, although ITG Group eased gains on Thursday to close five cents weaker at €8.90. Horizon was unchanged at €8.45 as was Riverdeep, at €4.40.

Of the large industrials, CRH lost 24 cents to close at €18.00 while Ryanair added five cents to close at €9.55.