After a firm start, the Irish equity market ended the week on a wobbly note as investors emerged to take profits and sluggish international markets provided little support.
But market watchers said the pause for breath should come as no surprise. "The market has been very strong in the first quarter. It shouldn't come as a surprise to anybody if it runs out steam for a while," one fund manager noted. "A period of consolidation might not be a bad thing at this point in time."
However, most analysts expect to see further gains in coming months although the pace of the advance may not be as dramatic as that which has occurred since the start of the year.
Having gained nearly 34 per cent in the year to date, analysts are pencilling in an ISEQ level of 5,600 to 6,000 at year-end.
Key to the ISEQ's performance in the months ahead will be financial sector which continues to constitute a good chunk of the index. The ongoing strength of the Irish economy and the growing merger trend evident in both the US and Europe should continue to lend support to the sector, supporting current valuations, analysts say.
Bank of Ireland's annual results in May will be closely watched and are expected to provide further evidence of the buoyancy of the sector.
However, there are some clouds on the horizon. AIB's annual meeting, which took place on Wednesday, focused attention once again on the recent controversy in the industry over overcharging and bogus non-resident tax accounts.
Interest rates are also likely to fall further in coming months, putting further pressure on already squeezed margins, while the costs associated with the introduction of a single European currency will also have an impact.
In addition to the costs of changing technology and systems to accommodate the new single currency, the loss of foreign exchange business will be keenly felt. AIB estimates this will cost the bank some £25 million.
The Government's decision this week to adopt measures aimed at calming the housing market may also take a toll. If successful, they would result in a slowdown in credit growth and lending and could hit Irish Permanent in particular.
But analysts noted that given the recent double-digit rate of credit growth, a modest slowdown would not be a big problem.
"We feel that the banks, for a range of reasons both domestic and international, have more upside," one analyst said.
The week was also marked by a strong performance by two industrial stocks with US exposure, Elan and Smurfit.
Elan shares soared on the back of strong first-quarter figures showing a 46 per cent rise in first quarter pre-tax profit to $54.9 million. The pharmaceutical stock also benefitted from a positive report from Standard & Poor's on its funding position for the $150 million acquisition of Carnrick and news that two clinical studies of Neurobloc has been successful.
Meanwhile, Smurfit was buoyed by continuing speculation of a merger between JS Corp, its 46 per cent-owned associate, and Stone Container.
