The collapse of one of Asia's largest independent investment banks and the drop in Hong Kong share prices has sent shivers through world stock markets. Irish shares fell by more than 2 per cent at one stage yesterday, before recovering to end the day down 1.67 per cent.

The demise of the Peregrine investment bank sparked a rout in the already battered region and fuelled fears about the Asian crisis right around the globe.

London, Europe's biggest stock market, lost almost 3 per cent while Frankfurt reported a decline of around 4 per cent at one point and the Irish market dropped by 2.4 per cent to a low of 4,115.22

But a sanguine reaction by Wall Street's Dow Jones to the overnight blood-letting in Asia helped calm European nerves and allowed most markets to clamber back to close above their lows.

The Dow Jones Industrial Average opened with losses of more than 100 points but it soon pulled back into positive territory, dragging European shares with it. Last night Wall Street closed at 7,647.18, a rise of 66.76.In London, the FTSE closed down 1.35 per cent while the German, French and Italian markets all staged modest recoveries.

The Irish market followed the general European trend and closed 1.67 per cent lower but above the day's worst levels. Most of the leading shares pared their losses later, helped by the Dow.

AIB, which dropped to a low of 697p, recovered to end 15p weaker at 710p while Bank of Ireland rebounded from 1069p to end at 1090p, a drop of 32p on the day.

Although financials bore the brunt of the fall, the leading Irish industrial shares also gave up some of their recent gains. CRH closed 18p lower on 840p while Smurfit yielded 7p to end at 193p.

But traders said that while the market's mood was likely to remain nervous for the rest of the week, the long-term prognosis for the Irish market remained good.

Ireland's economic fundamentals are sound and the outlook for corporate earnings remains extremely positive, a point underlined by a better-than-expected set of results from Fyffes yesterday.

The fruit importer and distribution group announced an 11.5 per cent rise in pre-tax profits and a 20 per cent jump in earnings per share for the year ended October 31st, 1997.

Dealers say they are expecting further good news on earnings from Jurys which is due to report half-year results today and Irish Continental Group tomorrow.

But brokers also admit that the Irish market will find it very difficult to make headway in isolation and the performance of key world markets, especially Wall Street, will be closely watched in coming days.