Ireland's substantial economic progress has led to a re-rating of its stock market to European levels. Analysts believe the economy should continue to thrive for this year at the very least with the market continuing to produce good returns for investors.

Frank O'Brien, investment director responsible for Irish equities at Irish Life Investment Management in Dublin, says investment flows are coming not just from US investors but also from Europe. Europeans, in particular, are jaded with Japan and many of them have been badly burned in Asia. America is looking to Europe and within Europe, we are the vibrant economy".

Says, Brian Gray, chief investment officer for Montgomery Oppenheim in Dublin: "Ireland is very strong in terms of the levels of economic growth it has achieved, and will continue to achieve this year and probably next."

Jeroen Boot, fund manager with Carlson Investment Management in London, is positive on the Irish market on the basis of the strong performance from financials, coupled to a good general economic situation and weak currency.

O'Brien adds: "On a two- year view, growth still looks intact. We are going to get a drop in interest rates as our rates converge at the short end to European levels giving an exceptional picture of sharp growth and falling interest rates."

With Emu, the fall in interest rates will continue, with Gray believing that although inflation may rise it will not be significantly above the European average.

He believes that company earnings prospects remain solid. "We are producing the best earnings growth in the world and have one of the lower multiples in Europe and this will drive the equity market higher over the year."

While much of this has been priced in, he still believes that there will be more returns. "I certainly think we are going to continue to outperform European equities and that could see us well above 10% for the year-on-year figures."

O'Brien expects some consolidation in the market but adds: "Most of the companies particularly those with a heavy Irish bias are reporting very good numbers."

Looking at the broader picture, he adds: "Growth has been driven by foreign investment which has been a feature for a number of years. US multi-nationals have set up in Ireland in hi-tech areas like computer software. This growth in now moving into the rest of the economy giving a broad-based economic upside."

Says Gray: "On the bond market we expect interest rates to fall this year, but on a relative basis the differentials that we have got over Germany and the UK leave us relatively unattractive."

"We are only a few basis points above Germany so to all intents and purposes we are fully converged," adds O'Brien.

Assessing the risks to equities, Gray says: "The major risk is of a drying up of overseas investment flows in the Irish equity market because that has been a key driver."

This would be provoked by worsening global equity market conditions or a worsening of the fundamental position in Ireland itself. However he adds that he doesn't see the risk as significant.

Boot agrees: "Maybe there is a little bit of currency and inflation risk. They are linked to each other but I am not too worried."

"We have a house view that sterling markets could get back towards DM 2.50 or DM 2.60. That will alleviate the inflation pressure from the UK that we are beginning to see," says O'Brien.

O'Brien points out that despite much diversification many domestic industries, the big employers, are still UK dependent. "If sterling misbehaves compared to the rest of Europe then it is more risky for us, than for Germany or anybody else."

His final longer-term concern is that with much of FDI concentrated in pharmaceuticals, computer hardware and software, any global setback for these industries could have a disproportionate effect.

On sectors, both O'Brien and Gray believe that they must look beyond financials.

"Themes that have been strong on a Europe-wide basis have been a play here, namely the outperformance of financials though it is difficult to see a continuation of that in as dramatic a fashion," says Gray.

Boot emphasises the stock-picking approach to Ireland but does favour building stocks. He expects company earnings in general to surpass expectations.

"I think what you will see is some of the better quality industrial stocks beginning to take up the running. Stocks like CRH at the right time in the cycle have the ability to grow their earnings by as much as 20%." says Gray.

He also favours Smurfit, Kerry Group and Elan. The latter, he says, "is going to give you 20% earnings growth on a sustainable basis, and that is very attractive in an Irish market context". John Lappin"

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