The Dublin market was sent reeling yesterday with the ISEQ down 4.58 per cent - one of the heaviest falls of the recent turbulence.

The decline - which saw almost £1.7 billion knocked off the value of the ISEQ - was in line with the performance of international markets which are becoming nervous about the possibility of recession in the United States.

The dollar's dramatic decline to a 21-month low against the deutschmark and a 12-month low against the yen is being seen as symbolic.

Rumours that the US Federal Reserve has been reviewing interest rates helped the dollar recover, but only slightly. Dealers in Dublin said investors were concerned about growing talk in the market of a possible US recession in 1999. A negative forecast by JP Morgan has compounded the nervousness.

Confidence remained high about corporate earnings in the US until recently, but cuts in forecasts by influential names like Goldman Sachs have make the market more pessimistic.

Investors were also anticipating the US House of Representatives' vote last night to open an impeachment inquiry into the behaviour of US President Bill Clinton.

The hearing is expected to be lengthy and to further drain confidence from the market, according to dealers.

In Dublin, AIB shareholders were squeezed again, as the bank's price came down from 901p to 816p. Bank of Ireland took a less dramatic dive, from £10.36 to 980p. Newcomers like First Active did not escape, falling by 30p to 260p.

Other financials also slid back with Irish Permanent slipping from 765p to 725p, Irish Life from 445p to 430p and Anglo Irish Bank down 3p to 135p.

The encouraging inflation figures from the Central Bank and the increasing likelihood of an interest rate cut were not enough to boost most share prices. "The rate cut is already priced into many stocks so it may not have the degree of upside some people expect," said one dealer.

In the absence of a rate cut, other stocks plunged. Grafton was down from £12.50 to £11.50, Ryanair was down 25p to 345p. One company swimming against the tide was IAWS which on Wednesday announced its interim results and its intention to bid for the four Spillers flour mills currently owned by Tomkins. Yesterday it was the market's strongest performer, rising 40p to 205p.

Smurfit rose 2p to 89p after the company defended the merger of its JS Corp associate in the US with Stone Container and claimed current market conditions meant the merger made more sense than ever. Tullow Oil, normally one of the strongest exploration shares, lost almost a third of its value as some leading investors decided to sell their stock. It closed at 46p, down 23p.