European shares posted their largest one-day rise in 15 months yesterday, recovering some of last week's losses as further injections of cash by the European Central Bank (ECB) helped calm investors' nerves.
In contrast to events on Friday, financial stocks were the top-performing sector on the European equities market yesterday, with Royal Bank of Scotland, HSBC and Barclays all among the top weighted gainers on the FTSEurofirst 300, pushing the broader European banking sector up 2.5 per cent.
This positive sentiment flowed through to the Irish banks, which also put in a strong performance and helped to push the Iseq index of Irish shares up 2 per cent on the day.
Anglo Irish was particularly in demand with almost six million shares changing hands as the stock jumped 4.9 per cent, to end the day at €14.05. While the other banks were slightly quieter, they still fared well, with Bank of Ireland added 3.8 per cent and AIB gaining 4.4 per cent.
Elsewhere the FTSEurofirst 300 index of top European shares had its largest daily percentage gain since May 2006, closing up 2.3 per cent. This followed a decline of 3 per cent on Friday when it had its worst one-day slide in over four years.
In the UK, the FTSE 100 ended 3 per cent higher, while in France the CAC 40 gained 2.2 per cent. Germany's DAX was also healthy, closing up 1.8 per cent.
"It's going to be volatile, as credit markets sort themselves out, but we believe that the underlying strength of the global economy and attractive global equity valuations will stop markets short of meltdown," said Tim Harris, markets strategist at JPMorgan Private Bank.
The FTSEurofirst 300 is up 1.7 per cent so far this year, having briefly wiped out all of this year's gains on Friday, but is still nearly 8 per cent down from this year's peak.
A host of central banks pumped yet more cash into the banking system yesterday after doing the same last week to support the financial markets amid extremely volatile share prices.
The ECB injected €47.67 billion into money markets, following the €61.05 billion it had provided to money markets on Friday. It also pledged to keep on supporting the markets.
"The ECB notes that money market conditions are normalising and that the supply of aggregate liquidity is ample," the ECB said in a statement.
"With this fine-tuning operation, the ECB is further supporting the normalisation of conditions in the money market."
Separately, the Federal Reserve injected some $2 billion (€1.47 billion) into the money markets while the Japanese central bank, the Bank of Japan, injected Y600 billion (€3.7 billion) into its system.
Traders said that the more positive sentiment yesterday showed the banks had made the right decision following revelations that a number of financial institutions outside of the US had exposure to the sub-prime mortgage market.
The sub-prime market sees homeloans being advanced to customers with poor credit histories.
The rollercoaster ride that saw billions wiped off the value of shares around the world last week stemmed from worries that problems in this market had started to spread to other jurisdictions. Still, while things did look much better yesterday, traders were quick to point out that investors still remained cautious.
Shares in Germany's Postbank fell nearly 1 per cent after the bank said it had taken on to its own books €600 million in exposure to two investment vehicles which have been run by crisis-hit German peer IKB.
Closer to home, Ryanair lost 2.3 per cent as the recent sharp falls in share values deterred investors from buying contracts for difference, a trading mechanism that becomes increasingly risky in declining markets.- (Additional reporting Reuters, Financial Times service)
