Shares in Dublin recovered lost ground yesterday, encouraged by gains in the US and on other European exchanges.

A day after poor sentiment in the US combined with the foot-and-mouth outbreak in Co Louth to prompt the worst cash losses in a single session, Irish stocks gained 2.6 per cent.

Traders said investors had regained "perspective" after "knee-jerk" selling on Thursday, when almost €3 billion (£2.4 billion) was wiped off the value of stocks. The ISEQ index closed 130 points stronger at 5,185.7.

The rise lifted food and hotel stocks damaged by the outbreak as traders said it was too early yet to predict what impact the crisis might have on the economy.

But while improved sentiment on the global markets supported the trend, not all the news was good. A particular loser was the Internet security specialist Baltimore Technologies, which lost 30.6 per cent after the group warned of falling revenues. The warning came only after shares crumbled when analysts got wind of grim news.

At the end of a week in which the chairman of the Federal Reserve, Mr Alan Greenspan, decreased interest rates by half a percentage point for the third time this year but disappointed the markets by not going further, traders said investors remained on alert for further profit warnings.

As a US rally on Thursday night pushed European stocks into recovery mode, London's FTSE-100 Index nudged back above the 5,400 barrier, closing 87.5 points stronger at 5,402.3.

Such trading helped erase losses on Thursday when £53 billion sterling (€85 billion) was wiped from the market. As European markets closed, US stocks clung to modest gains in early afternoon trading.

Traders are reluctant to buy stocks heavily ahead of the weekend, but their ability to stave off another heavy bout of selling is a positive sign, analysts said.

Investors have been left wondering if the market could be ready for a sustained recovery after months of wrenching sell-offs. Wall Street investors are still full of angst over the soft economy and weak corporate earnings that have mired the technology-rich Nasdaq and the broad Standard & Poor's 500 indices in bear territory.

The Dow Jones industrial average was up 115.30 points at 9,504.04. after dipping briefly into bear territory. A last minute surge of buying on Thursday saved the blue-chip gauge from closing in official "bear market" ground, defined as a 20 per cent dive from the market's high.

The Nasdaq Composite Index was up 31.28 points at 1,928.98, after jumping more than 2 per cent earlier and racking up a 3.7 per cent gain on Thursday. The Standard & Poor's 500 Index rose 22.32 points to 1,139.90.

In Paris, the CAC-40 index rose 126.31 points to end at 4,951.13. Frankfurt's DAX index was at 5,542.64, up 154.62 points or 2.7 per cent.