German banks were among the biggest early gainers in Frankfurt, with Dresdner up more than 5 per cent and Deutsche up 4 per cent. ``There is a much calmer atmosphere,'' said one London dealer. ``The possibility of interest rate cuts has suddenly caught people's imagination. Corporate action is stepping upand we're seeing a stunning performance by Asia,'' he added. But after the turmoil of last week that saw bond markets the big winners at the expense of equities, German debt markets dropped in thin volumes and technical factors pointed to further falls.

``It's the strength in stocks that is driving us down,'' said a Frankfurt trader at a major continental bank. Although US markets are closed for the Labor Day holiday European traders were focusing on the United States and beginning to weigh the possibilities of a US interest rate cut. The focus switched to US rates following a speech by Federal Reserve Chairman Alan Greenspan on Friday in which he warned that global financial turmoil and Wall Street's volatility might hurt the US economy and suggested he was as inclined to cut interest rates as to raise them.

``It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress,'' Greenspan said in a speech at the Universityof California in Berkeley. Although he did not directly comment on the bank's interest rate policy, Greenspan said it was a time to be cautious. That was enough to push the dollar into retreat, helped by the rally in Asian stock markets. The dollar hit a four-month low against the yen of 131.60 yen overnight and was eyeing the 9-1/2-month trough against the mark it hit last week. The Nikkei's second-largest point rise of the year followed rumblings from Japanese government sources who said finance minister Kiichi Miyazawa told US treasury secretary Robert Rubin and Greenspan on Friday the Nikkei was nearing a turning point where it would shoot higher. But traders said the market's movement was dictated more by chart points and Friday's expiry of index options and futures than by economics.

Rouble trading cancelled

Rouble-dollar trading on the Moscow interbank currency exchange was cancelled on Monday after the rouble had slumped by a further 17.76 per cent to 20.66 to the dollar. Trading under theelectronic fixing system was scrapped amid a lack of supply of dollars, which drove the rouble down to new lows, said a spokesman.

``The supply of dollars was very low and trading has been cancelled until further notice,'' he said The rouble was fixed at 16.99.