A FURTHER €2.2bn was wiped off the value of Irish shares yesterday as investors around the globe got windy about the possible outlook for economic and corporate growth.

The stark reality is that investors in the Irish equity market have had to watch the value of their holdings plunge a massive €12bn in the space of just seven weeks since the market moved into reverse at the start of June.

European shares fell as unease over the outlook for the US economy persisted, overshadowing a raft of upbeat results from European companies.

However, a series of disappointing results from some of the US bellwether companies unsettled European investors, who are already grappling with record strength in their currency, wide credit spreads and patchy earnings so far this quarter. The FTSEurofirst 300 index was down 1.4pc on the day.

The dollar hit a 26-year trough against sterling yesterday, weighed down by concerns over the credit market and its impact on corporate activity and the wider economy.

For holders of Irish shares, it was more of the same bad news. "The problem is that when international markets fall, so too does Dublin, but only faster. When overseas markets rise, Dublin does not catch up," one local fund manager stressed.

The upshot yesterday was that the Irish market fell by 2pc, or more than half a point more than the average for European stocks.

Financials were the chief culprits once more yesterday, with the four major banking stocks backtracking by a further 2.6pc, giving up €1.3bn of their value - or more than half the €2.2bn by which the market dropped yesterday.

AIB alone shed €500m and is now capitalised at just €17bn. Back in February, when the stock peaked at a shade below €24, Ireland's largest banking group was tipping the scales at €21bn.

CRH, the market's largest company, also fell heavily yesterday on worries about the US economy and a sense that possible bid interest from private equity funds had gone away.

Yesterday's sell-off in Dublin means the ISEQ Overall index is back trading at levels last seen early in December, while the index itself has lost 6pc year-to-date versus a 7pc gain in the FTSEurofirst 300 index.

The damage has, however, almost exclusively been done by the financials. Their index worth has fallen almost 13pc since the start of the year, compared with a modest 1pc decline in non-financials.

The basic reality is that key investors - the fund managers who have charge of billions of pensions and other assets - have lost faith in the Irish economic story, and particularly the changing conditions in housing and the effect this is beginning to have on new house building, house prices and mortgage demand.

Davy Stockbrokers yesterday predicted that house completions will have fallen to 65,000 in 2008, down 23,000 on the 2006 number - or a cumulative 25pc decline. The implications for employment in the sector are stark.

- Cyril Hardiman