European markets fell heavily yesterday ahead of the planned resumption of trading on Wall Street on Monday.

Early trading gains were wiped out by midday when markets headed sharply south mainly on nervousness about the direction Wall Street would take next week. Markets were also unnerved by speculation that the US was about take retaliatory action in response to Tuesday's terrorist attacks.

In Dublin the ISEQ which was open only for essential business closed down almost 2 per cent.

In London the FTSE closed down 3.6 per cent at 4768.2. Airlines and insurers lead the decline with further falls in late trading.

In Europe the Frankfurt Dax fell 5.8 per cent in late trading while in Paris the CAC was down just under 5 per cent at the close.

Global markets had regained some ground after Tuesday's sell off but those gains were erased yesterday.

"Its the fear of retaliation and possible escalation and markets hate uncertainty," one London dealer commented. Wall Street has been closed for an unprecedented four consecutive trading days but regulators said they hoped to reopen on Monday pending results of trading system tests to be conducted by securities houses today.

Hampering the return to full trading is the destruction of the Verizon Communications centre in lower Manahattan and damage to underground cables caused by the toppling of the twin towers described as equivalent to several minor earthquakes.

The shutdown has been the longest since the outbreak of World War 1.

Dealers expect a rocky start on Monday with uncertainty accentuated by the loss of many key strategists in investment funds and possible systems glitches. Some are forecasting falls of 5 to 10 per cent.

The Standard and Poors 500 Index had already fallen to three year lows last week on a jump in unemployment figures.

But some strategists believe the closure may have given time to calm nerves and allowed investors to get past the emotional stage.

The Securities and Exchange Commission is expected to lift restrictions on company shares buybacks to raise market liquidity on Monday and to take any steps necessary to restore credibility and confidence.

And major US securities firms are said to have agreed to prop up prices by buying shares if a flood of sell orders threatens to send the market into freefall.

The decision to open was reached after a second day of meetings involving Wall Street's most important banks.

Behind the scenes a rare consensus in unprecedented circumstances has emerged among the normally fiercely competitive Wall Street businesses that they will not engage in trading activities that would disadvantage their rivals.

Morgan Stanley chairman Mr Philip Purcell commented "The community really came together here in every way. Nobody is trying to get an edge - nobody".

Another senior banker commented "Everybody's first instinct now is protecting the integrity of the system."