IT was a game of two halves on the Stock Exchange yesterday, with financial stocks falling sharply, but the industrial stocks putting in a stronger performance.

Financial stocks were hit by a warning from the US Federal Reserve Board governor Mr Alan Greenspan, of inflationary dangers, but by far the dominant factor was speculation - confirmed after the markets closed last night - of a major expansion by AIB of its US operations.

AIB shares fell 10p to 407p, as rumours flooded the market of the acquisition and speculation rose of a fund-raising by the bank. Late yesterday AIB confirmed that its US subsidiary, First Maryland Bancorp, is to buy Dauphin Deposit for $1.36 billion, although it did not give any indication of an early fund-raising and actually said it would ask shareholders for permission to buy £50 million in shares back from the market.

Bank of Ireland also dropped back, with the share losing 6p to 566p. But Irish Permanent bucked the trend, ending 7p higher at 515p, with the company's shares going the opposite direction to the fortunes of its main sponsorship - the Irish rugby team.

As well as developments at AIB, the financial stocks were also affected by a weak bond market, with five year yields rising from 5.81 per cent to 5.68 per cent. Ten year yields rose to 6.55 per cent to 6.41 percent.

As well as Mr Greenspan's comments, bond investors were also wary ahead of today's Budget, with close attention on exchequer borrowing. Any sign of a loose approach to borrowing could further upset the market, although Mr Quinn could cause a surprise by announcing a relatively low borrowing figure. This might again give a lift to Irish bonds.

Elsewhere, trading was steadier. With final quarter results due today from its US affiliate, JS Corp, trading in Smurfit was busy. The share fell from an opening level of 175p to a low as 170p at one stage, but recovered to close only fractionally lower a 174.75p.

Independent ended 1p higher at 311p, while Waterford Wedgwood closed unchanged at 79p after a number of deals. CRH edged 2p lower to 630p.