Shares in Telecom Eireann were chief among the losers as the Irish Stock Exchange Index contracted yesterday - in line with other European bourses - amid continuing fears that a long-awaited interest rate rise in the US is imminent.

Telecom Eireann which went reached its lowest level since flotation, easing back 2.2 per cent to €4.40 (£3.47), 12 per cent short of its peak price of €5.00 (£3.94) on July 22nd. But the current price still represents a 13 per cent gain on the initial public offering price of €3.90 (£3.07).

Dealers said the general market inertia coupled with sectoral weakness had caused the decline. The telecoms sector has found itself out of favour due to a perception that technology stocks are over-valued.

AIB, meanwhile, slipped five cents to €11.90 (£9.37) while Bank of Ireland was back 12 cents to €8.53 (£6.72). US long bond yields have now risen to their highest level since October 1997, while most European indices have slid 10 per cent from their highs of the year.

"There now seems to be a general expectation that there will be an interest rate rise in the States when the Fed meets at the end of the month. But the fear now is that there will be more than that one rise," one Dublin analyst said. Markets are expected to remain relatively bouyant beyond the August 24th meeting and will only take a tumble if there are subsequent interest rate increases, according to Morgan Stanley Dean Witter.