European stocks rose yesterday as bargain hunting helped markets claw back some of their recent heavy losses. Shares were helped off five-and-a-half-year lows by gains in the battered telecoms and financial sectors and a steadier opening on Wall Street.

Worries about corporate profitability eased after a batch of companies, including conglomerate General Electric, said earnings were on track to meet forecasts. The Dow Jones index of blue-chip shares closed 2.07 per cent higher while the Nasdaq ended the day with a gain of 3.38 per cent.

"Today's gains were initially started by GE's positive comments and the fact that, on a technical basis, we're extremely, extremely oversold," said Mr Tom Schrader, head of listed trading at Legg Mason Wood Walker.

"If you're a value player, you've got to be wondering if this isn't the time to pick up good stocks at discounted prices."

Helped by the improved sentiment in the US, European shares logged gains. Across the 12-nation euro zone, the Euro Stoxx 50 index gained 1.7 per cent to finish at 2,224.8 points. In London, the FTSE 100 index edged up 0.7 percent while French shares climbed by 1.6 per cent.

Irish shares took a breather, however, after two days of sharp falls. The ISEQ index closed broadly unchanged although it remained below the pyschologically important 4,000 level for the second day running, finishing at 3,916.

Down 31 per cent year to date, the collapse of Elan has added to the Irish market's woes. But if the demise of what was once the largest stock on the Irish exchange is stripped out, the ISEQ's losses are far more modest at around 11 per cent, a far better performance than elsewhere in Europe and in the US.

But where Irish shares, and the overseas markets from which it takes its cue, will go from here is anybody's guess.

"Nobody has a clue where markets are going," says Mr Pramit Ghose, head of investment strategy at Bloxham Stockbrokers. "There is plenty of money out there and investors understand there is value out there but they are reluctant to commit."

However, he believes the coming days could prove crucial for stock markets worldwide.

If the broad based Standard & Poor's 500 index can hold above 800, and the FTSE 100 can hang in above 3,600, a turning point may be in sight. "We could be in the last throes of a bottoming out process," he says.

Others are less optimistic, remaining concerned about global economic growth, corporate profits and the threat of a new war in the Middle East.