Financial shares on the Dublin market have fallen sharply in tandem with those in other major markets . Internationally, profit warnings related to financial crises in Asia, Russia and other emerging economies have further damaged investors' confidence, with financial shares suffering the most.

The $3.75 billion bailout of Long-Term Capital Management (LTCM), a major US hedge fund, by a group of international banks earlier this week has led to further concern about the stability of the global financial system.

Although Irish banks are better positioned than those overseas, few observers expect them to remain immune to the general trends affecting banking stocks internationally.

In Dublin, the ISEQ index lost almost 1.5 per cent, with AIB down 40p to 940p, Bank of Ireland falling 10p to £11.60 and Irish Life down 15p at 485.

Traders in Dublin said that more bad news was feared from major US and European banks, leading to the Irish financial stocks being marked down along with the stock prices of most other major European banks.

Benchmark stock market indices closed down 2.09 per cent in Paris, 2 per cent in London, 2.3 per cent in Amsterdam, 2.4 per cent in Milan and 0.58 per cent in Frankfurt, though most were significantly above the lows they touched earlier in the day.

An earlier drop in the dollar to its lowest against the mark since April 1997, partly as a result of the LTCM concerns, also hit European manufacturing companies by threatening to make their exports less competitive.

European bourses got little comfort from an opening decline in US stocks. But the Dow recovered from its initial losses to stand up by some 20 points, or about 0.25 per cent, by the time European exchanges were closing. It later closed at 8028.77, up 26.78 points.

Thursday's announcement by Europe's biggest bank, Switzerland's UBS, that it expected a third-quarter loss of up to one billion Swiss francs (£480 million) because of the financial markets crisis and the LTCM rescue haunted the banking industry in Europe and the US. Shares in UBS dropped 18 per cent at one stage before pulling back to end 5.5 per cent lower in a Swiss market down 1.36 per cent on the blue-chip SMI index.

In Paris, bank shares to drop included Societe Generale, which closed down 8.06 per cent, Paribas losing 7.97 per cent, and Banque Nationale de Paris, declining 7.59 per cent.