An early rally in the Dublin and other European markets fizzled out as investors took stock of the deteriorating global economic condition.
The market started out very well, taking a fresh shine from news that US interest rates are set to come down.
A cut in interest rates often prompts a rush into equities as the benefits of holding cash decline. As a result, European markets rallied following testimony by US Federal Reserve chairman Mr Alan Greenspan's testimony to a US Senate committee and the ensuing surge on Wall Street and the Asian markets.
Mr Greenspan identified damaging "clouds from Asia" that threatened to unleash a downpour on the US economy. A fall in exports to traditional markets in Asia prompted a sharp fall in US growth from 5.5 per cent in the first quarter to 1.6 per cent in the second.
Before the rain starts to pour, Mr Greenspan said, the Fed was deter mined "to bring the existing instabilities to a level of stability reasonably shortly to prevent the contagion from spreading and creating some very significant further difficulties for all of us".
But later in the day investors began to focus on the negative background to the testimony and the fact that such a negative statement from the US is indicative of a good degree of caution. News that at least one large US hedge fund is in trouble to the tune of almost $4 billion (£2.7 billion) and rumours that others may be in a similar position also dampened sentiment.
Bank shares in Europe tumbled as creditor banks revealed large exposures to Long-Term Capital Management (LTCM), one of the world's largest hedge funds.
The fund needed a $3.75 billion bailout by the banks, arranged on Wednesday and brokered by the Federal Reserve Bank of New York, after its capital had dwindled away due to severe losses.
There were fears that bad trades by the fund would lead to more market turmoil since hedge funds typically make highly leveraged speculative trades, often totalling more than 10 times the amount they initially put down.
Europe's largest bank, UBS, said it had to write down the value of its investment in LTCM resulting in a charge of 950 million Swiss francs (£470 million).
Nevertheless, the two big Irish banks ended the day higher as did CRH and Jurys. Bank of Ireland closed up 40p at £11.70, while AIB was up 43p at £9.63. CRH put on 18p to close at £8.33 in a sterling denominated deal, while Smurfit added 4p to close at £1.07. Jurys continued its rapid gains of Tuesday when news of the Doyle Hotels takeover emerged. It closed up 50p at £5.50.
Meanwhile Independent lost 5p to close at £2.50.
It also emerged that Powerscreen director, Mr Brian Kearney, bought 35,000 shares. Powerscreen only dealt in London at 78p sterling (88 1/2p), having closed at £1.02 on Tuesday.
