Eircom shares have continued to make a strong recovery and shareholders, who saw their shares plunge below the flotation price over the past week, can breath a sigh of relief now that they are back showing a profit on their investment.

From the overnight €3.80 (£3), strong demand from Irish institutional investors saw Eircom shares rise as high as €4.08 (£3.21) before they ended the day's trading on €4.01 (£3.16), up 21 cents on the day.

This compares with the €3.90 (£3.07) flotation price of last July and last week's low point of €3.65 (£2.87).

The about-turn in Eircom's fortunes came against the background of a better performance by the European telecoms sector, where sector heavyweights like Telecom Italia and France Telecom notched up gains after recent weakness.

In Eircom's case, the recovery was boosted by the clear presence of domestic institutions in the market bidding for stock.

Irish institutions, which are significantly underweight in Eircom shares given the stock's 12 per cent weighting in the ISEQ index, had stayed on the sidelines as Eircom shares fell in recent weeks as this allowed them to outperform the index.

But there is a general feeling now among Irish fund managers that, at €3.65, Eircom shares had fallen too far and that it was time to begin buying.

As was anticipated, when the recovery in Eircom shares came that recovery was quite dramatic.

However, market sources said shareholders should not expect yesterday's 21 cent rise in the shares to be maintained.

"The chances are that the shares will trade broadly in line with the sector from here, but they should get a boost from the announcement that Eircom is getting one of the wireless licences.

"The interim results in November will also be a big figure and the shares may be trade up ahead of those figures," said one source.