The Irish stock market continued its upward march, helped by a strong performance in financial shares amid growing optimism that the US Federal Reserve will cut interest rates at its key policy meeting later today.

Market sentiment in Europe and on Wall Street was also improved by the lessening of tensions between the US and Iraq which had weighed on markets toward the end of last week. Most European stock markets gained 1.25 to 3.0 per cent as exporters benefited from an easing dollar and stocks with Asian exposure were lifted by news of a new economic stimulus package in Japan.

"The market has been helped by a strong performance in the US and we also saw a good performance from Far Eastern markets. Financial stocks are doing well on the hope that the Fed will cut rates," one dealer said. Analysts expect the Fed to cut its key short-term rate by a quarter of a point to 4.75 per cent, even though global financial markets have steadied.

At home, banking shares were the main beneficiaries of the improved international environment. The financial index gained 2.4 per cent compared with a drop of 0.4 per cent on the general index.

Bank of Ireland did particularly well in the wake of last week's strong interim results, gaining 50p to £12.85. AIB trailed it slightly but nonetheless managed to add 25p to £10.10.

First Active gained 7p to 330p but merger prospects Irish Life and Irish Permanent lost ground. Irish Life closed 6p lower at 557p while Irish Permanent lost 10p to 885p.

Trade in industrial shares was more subdued, although dealers reported some interest in Smurfit following the publication late in the day of better than expected box shipment figures. The share price closed 3.75p higher at 120.5p, while CRH firmed by 14p to finish at 975p.