IRISH bond markets fell again amid continuing nervousness and selling pressure from abroad. However, dealers said some players began to return in the late afternoon yesterday.

This is not the meltdown web saw in 1994, one dealer said, although Monday saw the biggest fall in European bond markets for over a year. "In 1994 there were, worries about inflation that is not at all relevant now," he, pointed out.

European bonds have performed very badly in recent weeks on fears that European interest rates may have bottomed out. US Treasury bonds also performed badly in London yesterday as investors took profits ahead of congressional testimony by the Federal Reserve chairman, Mr Alan Greenspan.

"The US market also came off dramatically in a sympathy trade overnight," said Mr Patrick Dimick, economist at CS First Boston. "The European markets got absolutely smashed on Monday."

We were also tracking the European markets down," a trader at a Dublin brokerage said. "But in the afternoon domestic institutions came back in the cash market." He added that even the international arbitrageurs had begun to return late in the day. "They see good value in the spreads," he said.

The benchmark US Treasury bond fell 31/32, raising the yield to 6.32 per cent from 6.17 per cent at Friday's close. The Irish 10 year bond closed yesterday at a yield of 7.69 per cent it hit a low earlier of 7.74 per cent.

Over the pass four weeks, the Irish five year bond has fallen, from a yield of 6.3 per cent to 6.9 per cent. "If this continues we won't be seeing any more cuts in fixed rate mortgages," another dealer said.

The fall out in bond markets also hit equities. The Dow Jones industrial average plunged more than 69 points in early trading, triggering the New York Stock Exchange's limits on programme trading. It managed to regain some of the losses and was down 32 points at the close of trading in Dublin. At the close in New York, the Dow was down 44.79, points at 5458.53.

In Dublin the ISEQ also fell, closing down almost 19 points at just above 2300, while the FTSE 100 fell 29.7 points.

Meanwhile the pound held its gains against sterling, trading at around 103p, after sterling gained against the deutschemark. Sterling mostly tracked the dollar higher when it rose after aggressive buying by the Bank of Japan, backed up by the announcement of a currency intervention pact between Japan, Hong Kong and Singapore.