Share markets around the world rallied yesterday, with Paris reaching a record high, as investors felt US interest rates might not have to rise substantially in the coming months, amid signs that US inflation was still under control.

The Irish stock market ended firmer yesterday, but still lagged the strong gains on overseas markets.

The index finished 1.2 per cent higher at 4,521.33 points.

French stocks surged by about 3 per cent into record territory in heavy volume encouraged by the latest US economic data. London rose by 1.7 per cent.

Wall Street jumped by more than 100 points in early trade, adding to a 200-point plus surge the previous session, in a rally which set off a chain reaction in Asia, where Hong Kong closed up nearly 4 per cent and Tokyo ended 3 per cent higher. The Dow Jones closed at 10,731.76, up 1.03 per cent on the day.

In currencies, the yen rallied by nearly 2 per cent to a October high against the euro and by more than 1 per cent against the dollar amid growing investor enthusiasm for the Japanese currency.

News that the US economy grew at a strong pace while price pressures remained under control during the third quarter prompted some players to put aside chances of another interest rate rise before the end of the year. This buoyed rate-sensitive asset markets and boosted the dollar. The chairman of the US Federal Reserve, Mr Alan Greenspan, in a speech on Thursday night called the economy's recent growth rate unsustainable, but said the rise in longterm interest rates seemed to be containing the risks of inflation.

The euro also came under pressure as the 11-nation group's trade surplus narrowed and analysts expressed concern about economic recovery despite expectations the European Central Bank would raise rates next week. Euro-zone government bond market prices rose, building on significant gains made during the week, but traders said further rises would be limited ahead of a European Central Bank meeting next week.

The equity markets grabbed most of the attention as easing worries about interest rates helped European growth and financial stocks rally.

Across Europe, rate-sensitive banks, insurers, media, telecoms and technologies were strong as investors rotated out of some favourite cyclicals and economy-sensitive shares on hopes that the worst was over for bond yields.

The euro-zone government bond market was looking healthier. The cash benchmark 10-year Bund yield was at 5.19 per cent in early trades, around 25 basis points below the level at the start of the week.