Stock markets recouped some lost ground yesterday but investors remained on tenterhooks as fears of further accounting scandals continued to hang over the market, writes Jane O'Sullivan.

Analysts said that, while economic data supported a recovery, investor nervousness meant it could be some time coming.

"There is a general feeling that the economy has decoupled from the market," one Dublin dealer said. "No one is convinced of a rally yet so most investors have taken to the sidelines."

Lingering jitters about corporate America's accountability were re-ignited when Wall Street opened, as rumours swirled around General Motors (GM) following a halt in trading in the auto giant's shares due to an imbalance.

The Dow Jones index subsequently recovered, helped by the release of some upbeat US economic data, to close 149.81 points higher at 9,269.92.

The Nasdaq also bounced back, to end up 29.87 points at 1,459.2.

Figures released by the US Commerce Department showed that the US economy grew by 6.1 per cent in the first three months of the year, compared with a forecast 5.6 per cent.

Growth was boosted in part by the first increase in business spending on equipment and computer software since the third quarter of 2000.

News that the labour market was also showing signs of improvement, with fewer US workers signing up for jobless benefits last week, also helped to calm market fears.

But the market's dip on the GM rumours underlines just how nervous investors have become in the wake of the Enron and WorldCom scandals.

"After WorldCom, the psychology of the market is critical," said Mr John Smith, head of strategy at Brown Shipley Investment Managers in the US. "We are still not out of the woods and there is still going to be a lot of volatility and uncertainty."

Despite seeing gains in other European markets, the Irish stock market remained in the doldrums, closing modestly lower as shares such as AIB, CRH and Elan continued to slide.

However, a handful of stocks bounced back from Wednesday's sharp losses with Bank of Ireland and Galen proving notable climbers.

In London, shares closed just above a nine-month low, barely remaining in positive territory.That they did so was thanks to a strong performance from individual shares, including telecoms group Vodafone, which added 2.3 per cent as it rebounded from the sharp losses of nearly 5 per cent in the previous session.

- (Additional reporting by Reuters)