The Irish market fell to its lowest level in more than 15 months yesterday as negative sentiment in the global banking sector weighed heavily on the index. The Iseq index of Irish shares had almost €2 billion wiped off its value as it fell more than 2 per cent to 7,458, its lowest closing level since July 2006.

While sentiment was negative right across Europe and the US, due to the strong weighting of financial stocks on the Iseq - the four main banks account for more than 40 per cent of the index's total share capital - it suffered more than most.

Irish Life and Permanent (IL&P) was the worst performer among the Irish banks yesterday, dropping as much as 6.5 per cent before recovering some ground to end the day down 3.4 per cent at €13.61. Dealers said that in addition to the global negative sentiment, IL&P was also very susceptible to any talk about the Irish housing market.

Anglo, which has been trading in significant volumes recently, also had another bad but very busy day, falling 3.1 per cent to €10.79. At one point the stock traded as low as €10.52.

Dealers said this stock has been the victim of speculation, including talk in the market last week that it had sought additional financing from the ECB.

Anglo carried out a €2 billion financing exercise last week involving the conversion of commercial loans into covered bonds.

These were then swapped with another European bank with the aim of increasing liquidity. John Bowe, head of capital markets, insisted there was nothing unusual about the procedure. Analysts agreed, with one saying that Anglo had simply been the victim of "scaremongering" in the markets.

Scott Rankin, a banking analyst at Davy, said the increased focus on Anglo's performance of late was the impact of a "mushrooming" of concerns about the commercial property sector. As much as 55 per cent of Anglo's lending is tied up in commercial property, with 44 per cent of its loan book coming from the UK.

Elsewhere, Bank of Ireland dropped 3.2 per cent to €11.44, and AIB was down 2.8 per cent at €15.90.

Banks were also the biggest losers elsewhere in Europe as shares declined for a third straight session. UBS, HSBC and Royal Bank of Scotland were among the biggest weighted losers, down between 1.6 and 3.7 per cent.

In London, the FTSE 100 fell 1.1 per cent, while Germany's DAX shed 0.5 per cent and France's CAC 40 lost 0.6 per cent.

The pan-European FTSEurofirst 300 index lost 0.7 per cent, ending the day at its lowest closing level since October 22nd.

"Things could get worse in our view," Credit Suisse analyst Jonathan Pierce said of UK banks.

"It seems increasingly likely to us that recent events could escalate into a full-blown financial crisis. The issue is one of confidence."