European stock markets posted healthy gains yesterday, driven by a 3 per cent surge on the FTSE 100 and a welcome rally on Wall Street.

In Dublin, a 2.23 per cent climb was led by the main financials, which rose in line with their British counterparts.

London's insurance stocks were the star performers, gaining on the back of a Financial Services Authority decision to relax solvency requirements, thus taking the pressure off the sector to sell shares.

The FTSE was pushed ahead to close up 122 points at 3689.4 - its biggest rise in three months.

In Dublin, Bank of Ireland gained 4 per cent to close at €9.85, while AIB rose by 2 per cent to reach €9.85. Irish Life and Permanent closed almost 3 per cent higher at €10.50.

Ryanair was stronger on the day, gaining eight cents to close at €6.77 as last week's acquisition news continued to be well-received. The main industrial, CRH, was also in favour, rallying to close 4 per cent higher at €12.25.

European shares were also boosted by early strong gains on Wall Street, where the Dow Jones Industrial Average was boosted by better-than-expected profits reports and broker upgrades.

The German DAX 30 index firmed 0.57 per cent to 2,763.44 points in late trade and the French CAC 40 index climbed 0.68 per cent to 2,957.79 points.

The Dow was carried up by a report showing that factories scored their third straight month of growth in January, feeding hopes that the economic rebound will gather momentum in 2003.

Separate data showed spending on new construction jumped an unexpectedly large 1.2 per cent in December, led by a surge in residential construction.

Investors stepped warily however, still mindful of a possible war that could hurt the economy and corporate profits.

"You are looking at a little bit of bargain hunting. We had some good economic data, but there is still this cloud overhanging the market," said Mr Arnie Owen, managing director of equities at Roth Capital Partners.

Dublin dealers were also sceptical, citing a continued reluctance among investors to expose themselves to a market subject to extreme volatility.

"Everybody's just waiting," said one Irish trader.

Some of the early gains were pared back in the US, with the Dow ending at 8,109.82, up 0.7 per cent.

The tech-led Nasdaq closed at 1323.79, up just 0.22 per cent.

The currency markets were also engaged in nervous expectation, with continued dollar strength driven mainly by technical factors.

The euro slipped to $1.0694 in early trading but had regained some ground before European markets closed, rising back to $1.076.

Bank of Scotland (Ireland) head of FX sales, Mr Niall Duggan, said the dollar was "just moving around" in advance of tomorrow's presentation to the UN Security Council by US Secretary of State, Mr Colin Powell.

"People are not getting clear signals," Mr Duggan said, pointing to US employment numbers, also due this week, as another directional influence. -