MARKET REPORT - Iseq: 4,416.03 (326.47).STRONG GAINS in the banks and airlines drove one of the Dublin market's strongest rallies in recent years yesterday, with the Iseq index of Irish shares closing up over 8 per cent up at 4,416.03.

However, dealers reacted cautiously to the news, saying that the bounce could have been a reaction to the fact that many stocks have been oversold in recent days.

Leading shares recovered much of the ground lost last week, helping to ensure that Dublin outperformed its European peers. The Dow Jones 600 index of leading European stocks was up 2.7 per cent at 4.30pm yesterday.

Ryanair gained altitude on the news yesterday afternoon that oil fell to $118 a barrel in New York on the back of falling demand in the US and Europe. The low-cost airline added 15 per cent to close at €2.583.

AIB was up 12.9 per cent at €9.04, Bank of Ireland was up 11.9 per cent at €6 and Anglo Irish was up 12.88 per cent at €5.723.

Dealers reported that volumes were light in the morning, but picked up in the second half of the day.

Close to 11 million shares were traded in AIB in Dublin yesterday. More than eight million shares changed hands in Anglo Irish Bank and investors bought 9.2 million units in Bank of Ireland.

Irish Life and Permanent, the State's biggest home lender, also made ground. It added 10.5 per cent to close at €6. Almost five million of its shares were traded in Dublin yesterday.

Dealers suggested that at least some of the bank gains could be attributed to short sellers moving in to cover their positions as the market rose, and they pointed out that swings of 10 per cent or more are now common in the price of these stocks.

Building materials giant CRH was one of the other leading stocks to make gains yesterday, adding almost 6 per cent to end at €17.11.

Settlement date:August 8th