The value of Irish shares has risen by £1.2 billion with a rally once again led by the financial sector. The ISEQ Index closed 2 per cent higher at 5,251.33 yesterday buoyed by a strong performance by the British financial sector. The Dublin market opened higher, lost some of its momentum following a weak start on Wall Street but was heartened by a late rally in London. The two main banks were once again the focus of attention, although this was not fuelled by takeover speculation. Following last week's rollercoaster ride, AIB's share price settled down once more with the rumours of an early bidding approach firmly scotched.

Results from the British Lloyds TSB Bank boosted the sector in London and, ahead of results from AIB next week, helped boost the fortunes of the Irish banking sector. Lloyds' shares closed 8 per cent up at 847p and catapulted the entire banking sector higher after it kicked off the reporting season with a 14 per cent rise in pre-tax profits to £3.285 billion sterling, on a continuing basis.

On a statutory basis, profits dropped 5 per cent to £3.015 billion, as forecast, due to provisions of £400 million announced in the first half against mis-sold pensions.

In Dublin, AIB increased from €15.85 to €16.20 on the back of continued investor interest ahead of its 1998 results due on Wednesday. Analysts expect the bank will report up to 40 per cent growth in pre-tax profits to £822 million (€1,043 million) next week as it continues to benefit from the strong Irish economy. The figures will also be helped by a 12 month contribution from it Dauphin Deposit Bank acquisition in the US.

Bank of Ireland also enjoyed a strong performance, with the shares moving from €17.80 to €18.60. Again brokers reported good overseas interest in the stock, particularly from British investors following a roadshow by the bank there this week.

Outside of the two banks the other financials also did well. Both Irish Life and Irish Permanent put in a strong performance. Irish Life closed at €9.10, up from €8.40 at the beginning of trading. Irish Permanent also notched up gains, rising from €13.60 to €14.45. Anglo Irish Bank was slightly stronger at €2.52, up from €2.50. European stocks closed up, but well off their intraday highs, while in New York last night the Dow Jones index ended 88.57 points lower at just over 9,274.

London's FTSE 100 ended the day 1.1 per cent higher, driven by sharp gains in Lloyds TSB and other heavyweight bank stocks, dealers said.

Yet the blue chip index finished well below the 2.4 per cent gain it posted at one stage, dragged down by the volatile performance on Wall Street.

Germany's Xetra DAX index cut its gains to close 0.6 per cent higher, while the Paris CAC 40 was 0.3 per cent lower.

Activity in financial markets is expected to get off to a sluggish start next week with US markets closed on Monday for President's Day. Many Asian markets will also be closed next week for the Chinese New Year holiday.