The Irish stock market did not remain immune to the weakness afflicting overseas markets and finished the day 1.5 per cent lower.

European share prices tumbled by as much as four per cent in some cases as millennium holiday euphoria gave way to a New Year hangover brought on by concerns about higher interest rates on both sides of the Atlantic.

Market-watchers said the wobble was partly a correction from unrealistic gains notched up during December and partly down to the failure of the millennium bug to rear its ugly head and threaten growth, which would now have to be restrained through higher interest rates.

"People are waking up to the fact that has been pointed out to them for a few weeks now, that bond markets have been going south quite quickly and are indicating that we really do expect interest rate rises," said Mr Gerry Evans, European strategist at Enskilda Securities in London.

With many fund managers not yet back at their desks, dealers said trading in Dublin was light and scrappy with most of the volume concentrated in the two main banks. AIB shed 40 cents, or 3.5 per cent of its value, to close at €10.92 (£8.60) while Bank of Ireland was down 13 cents, or 1.6 per cent, at €7.77 (£6.12).

Also contributing to the 2.3 per cent drop in the financial index was Irish Life & Permanent, which lost 10 cents to €9.30 (£7.32), and Anglo Irish Bank, down five cents at €2.25 (£1.77), despite announcing plans to set up an insurance company.

Among the main industrial stocks, CRH was down 32.5 cents at €21.075 (£16.60), while Eircom, after dropping to €4.05 (£3.19) first thing, later recovered some ground to close at €4.15 (£3.27).