Stock markets all over Europe have notched up spectacular gains and the Irish market has recorded its biggest one-day gain to date, as investors reacted enthusiastically to the moves by the Japanese government to stabilise its banking industry.
However, market analysts warn that further turbulence is likely to lie ahead.
More than £2 billion was added to the value of Irish shares as the market rose over 6 per cent. But dealers warned that the extent of yesterday's rise emphasises the volatility of stock markets and that daily rises and falls of over 3 per cent may be the norm until stability returns.
While Wall Street's 2 per cent rise on Friday - and another strong rise in US shares yesterday - encouraged European markets, the main spur was the decision of the Japanese parliament to introduce a series of measures to nationalise collapsed banks and sell off their bad loans. Tokyo stocks and the yen surged on the passing of the Bills, with investors hoping for an end to Japan's banking crisis.
Tokyo has come under intense international pressure to push ahead with reforms to clean out its 87.5 trillion yen (£480 billion) in bad bank loans. Weeks of delay in coming to an agreement have badly hurt the country's already fragile economy.
But investors felt a wave of confidence yesterday. The Tokyo market was up 5.2 per cent while Hong Kong responded equally enthusiastically with a 5.7 per cent gain.
Dealers said the firm yen, the passage of the first set of crucial bank reform Bills in Japan and hopes that the weaker dollar would provide breathing space for Asian central banks to lower interest rates spurred on the markets. "There is a genuine change of sentiment, which could be long term," said Mr John Schofield, the Prudential Bache Securities regional technical analyst, in Hong Kong.
European stock markets surged, despite continued underlying nervousness about the global financial turmoil. London's FTSE 100 index of leading shares jumped 4.4 per cent. There were even bigger gains in some other European markets, with the Frankfurt's market up 7.5 per cent points at the close. In Paris, the market rose 5.51 per cent while the Milan market was 7.22 per cent points higher.
In Dublin, the big financial shares recorded the biggest gains. Allied Irish Banks shook off any concerns over DIRT and its non-resident accounts to rise 50p to 885p. Bank of Ireland rose 75p to £10.50, one of the share's biggest one-day gains, while smaller shares of smaller financial institutions like Irish Life, Irish Permanent, First Active and Anglo Irish Bank were all sharply higher.
However, analysts warned of underlying nervousness. Mr David Bowers, European equity strategist at Merrill Lynch, said that the worldwide financial crisis threatened even economies with sound fundamentals.
"There's a lot more turbulence to go through before the positive economic fundamentals can reassert themselves," he said. "The big question now is whether the financial markets will create a recession in the real economy," he said.