The pound has gained ground following sterling's rise in international markets and a resurgence of talk about a revaluation of the Irish currency. Meanwhile, equity markets in London and Dublin lost ground as investors reacted to indications from the British government that sterling's entry to EMU would be delayed beyond 2002. However, investors nerves stabilised by the end of the day, with Dublin share prices closing 0.6 per cent lower and the FTSE 100 in London closing 1.4 per cent down, having fallen over 2 per cent in earlier trading.

In the currency markets yesterday, the pound had risen by the close to DM2.6160 - more than four pfennigs higher than Friday - and to 90.22p against sterling. Earlier in the day it had traded as high as DM2.63 and at almost 91p against sterling.

Market sources said around £350 million was bought by foreign funds, particularly in the US and UK. However, as the currency went higher, Irish corporates stepped in during the afternoon to buy almost £200 million and pushed the currency slightly back down.

Mr Jim Power, chief economist at Bank of Ireland, said the foreign funds were covering their positions, having sold substantial amounts of the currency earlier this year.

In addition, sterling strengthened considerably after markets took the view that sterling will not enter monetary union for longer than they had hoped.

Officially, the government's position remains unchanged: Britain is "highly unlikely" to be in the first group of countries to adopt the euro in 1999 and that there are "formidable obstacles" to British participation in the zone.

But financial markets were alarmed at an article in The Times on Saturday, based on an interview with the Chancellor of the Exchequer, Mr Gordon Brown, which reported that the government had decided Britain would not join the euro before the next election, due by 2002 at the latest.

"The Times article deflated the optimism that was reigning on the markets," said Mr David Coleman, chief economist from Canadian Imperial Bank of Commerce.

Three weeks ago, The Financial Times quoted a senior minister as saying that the Labour government had decided in favour of entry into monetary union at an early stage after 1999.

As dealers await Mr Brown's promised statement to the House of Commons, which reconvenes next Monday, "confusion and uncertainties remain," the CIBC economist said.

At the same time, shares fell sharply in a volatile trading session. Shares were particularly vulnerable to weakness on this day of all days. Markets were nervously marking the 10th anniversary of the 1987 global stocks meltdown and price falls last Friday on Wall Street had already set the tone for a sell-off as markets opened in Europe.

As Mr Brown appeared on television to open the new order-driven trading system, the disappointment of markets at the government's new position on EMU was starkly visible. The giant screen charting prices under the new system seeped a deep red to indicate that the market was selling.

At one stage share prices in London dropped by more than 2 per cent.