THE Irish market made steady headway yesterday, buoyed by the domestic bond market and an enthusiastic start to trading on Wall Street.

The announcement of a merger between Bell Atlantic and Nynex Corporation lifted sentiment in the US, which helped overseas markets, although there was some evidence of profit taking in late trading.

The Italian election result, where economist Dr Romani Prodi's Olive coalition won, also lifted sentiment in bond markets. The centre left Dr Prodi, who is committed to monetary union, pushed media owner Mr Silvio Berlusconi's party into second place.

Dealers said there was good interest in the leading and second line stocks but volume was fairly thin. The financial section of the index added 0.6 per cent compared to a fall of 0.11 per cent for general stocks.

The financials gained on the back of a continued bull run in the bond market. Bank of Ireland closed 7 1/2p higher at 459 1/2p, although it traded as high as 460p earlier in the day. MB closed flat at 340p although it traded as high as 347p earlier in the session.

Irish Life also closed flat at 255p and Irish Permanent added 3p to 380p.

Overseas investors continued to buy CRH. It closed at 593p, up 8p to another new high.

Crean closed flat at 225p after it announced results in line with expectations.

Smurfit bucked the trend. It lost 6p to 169p after the stock went exdividend.

The bond market saw "continued excellent performance", traders said. Strong foreign demand, a weaker deutschmark and more fund raising by the National Treasury Management Agency combined to lift the market.

The benchmark 10 year bond closed at 103.10p to yield 7.41 per cent from 7.49 per cent on Friday while the five year, due 2000, closed at 104.85 to yield 6.59 per cent from 6.65 per cent last week. The new five year benchmark, due 2001, closed at 98.60, yielding 6.71 from 6.80 per cent on Friday. The agency unloaded £100 million of the new 6.5 per cent bond, due 2001, early this morning at 98.50 and another £80 million at 98.65 later in the day.

Traders said the agency had now cleared the balance of Friday's £350 million issue. They expect switching terms out of the old benchmark, due in 2000, on today or tomorrow.

However, further issues are unlikely this week as the US will auction two and five year paper today and tomorrow, while a 10 year German auction is scheduled for tomorrow.

So called convergence trades continued to be popular as foreign investors bet that the spread between German and Dutch bonds and Irish gilts would narrow in the run up to monetary union. The weaker mark also encouraged investors to move out of the core "mark economies" into the peripherals like Ireland, Spain, Italy and Denmark, traders said.