Sceptical investors are now wondering how long the bull run can last. The last Iseq peak was followed by the deep trough that hit markets across the world.

The Iseq dived from over 5,600 on 10 September 2001 to a low of 3,700 in October 2002, wiping billions of euro off the value of investors' shares.

This time around, the mood is buoyant. Economic indicators are promising.

Demand for goods and services is up.

The financial and construction heavyweights are thriving. Add to the mix a whiff of takeover excitement in the air.

All in all, could things be better?

That's just it, says Joe Mottley, head of equity strategy with Setanta Asset Management. He is not convinced the good times will keep the Iseq rolling upward. "You might say the environment is as good as it gets for the Irish market. The cycle is always with us."

What has gone up so rapidly, can always come down. "Our overall view on the markets is somewhat cautious based on the fact that the current bull market cycle has been under way since early 2003, " Mottley says. "That's long by historical standards. If you're looking to put money in there around this time, put it this way: I wouldn't put it all in today."

Welsh fund manager Gervais Williams, is confident that there is lots more to play for. He believes a "virtuous circle" has been created by the combination of favourable equity markets and the unique traits of the domestic Irish economy. If anything, the Iseq has not fulfilled its promise yet, he says. "Ireland deserves a premium compared to other European markets, and it doesn't really have that."

Williams' Gartmore Irish Growth Fund has delivered 130% returns for investors over the past four years, investing mainly in small and medium-cap quoted Irish companies such as CPL, Viridian and exploration stocks such as Dragon Oil and Gas. "There are some cracking businesses still around, " Williams says.

The consensus view is that economic indicators suggest last week's alltime high for the Iseq is built on reasonable foundations. Most forecasters expect GDP growth of over 5% this year. Demographic trends including continued high immigration, point to sustained demand for goods, services, credit and mortgage lending.

Warm economic winds are embracing companies exposed to the construction and financial services sectors . . . and that covers most of the largest Irish public companies.

"The fundamentals would support the Irish index being at record levels, " says Ulster Bank market economist Niall Dunne.

But there is also the big picture to think about. Irish shares have been benefiting from a global flow of funds into equities. In the US, the Dow Jones Industrial Average and the S&P 500 are at five-year highs.

In London the FTSE 100 has added 7% this year, growing even faster than the US indices. Germany's Dax has almost trebled in value since 2003, even as the country battled with sluggish economic growth, unemployment and low consumer spending.

The flipside of this coin is that international jitters could quickly shake the Irish market. Large trade deficits in the US haven't gone away. There is concern in some quarters that the US economy might have been pushed too hard, that interest rates may have been left too low for too long.

Closer to home, fiscal policy is also a concern. "To me the only real issue for the Irish economy in the coming year is how we respond to the higher interest rates and how high those rates go, " says Bank of Ireland chief economist Dan McLaughlin.

The nightmare scenario is this: rate rises hit the property market; indebted home borrowers are stretched too far;

and the economy is derailed. But McLaughlin does not see that happening, even if the European Central Bank hikes its base rate as high as 3.5%, from the current 2.5%. "Rates will rise and I think that will slow the economy down to some degree, but not dramatically, " he forecasts.

The key factor for the Iseq is that the big guns are in rude health. The banks are buoyed by the housing market and by consumer spending.

Grafton, Kingspan and homebuilders McInerney and Abbey are well-positioned both for domestic growth and for an expected upswing in construction activity in the UK.

And then there is the hint of action. As well as Eircom, Greencore, Fyffes and Irish Life and Permanent have been mooted as possible takeover targets.

Last week's bid for the UK's Prudential by pan-European insurance group Aviva gave a nice kick upward to IL&P's share price. Some see the bid speculation as a positive sign. On a more cautionary note, Mottley suggests that several shares are buoyed by bid speculation or takeover approaches to values to levels that "in the aggregate, you would think is not sustainable."

"Fair value", is the verdict of Pramit Ghose, head of investment strategy at Bloxham, on the current valuations of Irish shares.

Excluding the reliably volatile Elan, the remaining Iseq constituents are trading at an average price-earnings ratio of 13.5 times, he notes. "None of the big stocks are on what you would call extraordinarily bubbly valuations."

Given the good news messages filtering out in recent weeks as companies, including CRH, AIB and Grafton Group reported, Ghose wouldn't be surprised to see the index break the 9,000 barrier by this time next year.

The not normally over-excitable Robbie Kelleher, head of equity research at Davy Stockbrokers, suggests that this milestone might be reached even earlier. "We think it could go above 9,000 by the end of the year." He believes the Iseq could finish this year ahead by 20%, and "probably" could do another 20% next year.

It mightn't be time just yet for gamblers to start stashing it all under the bed.

NEW FACES EXPECTED ON ISEQ

AFTER a barren 2005 for flotations, the Iseq's strong performance over the first quarter has reinforced hopes that 2006 will see several companies come to the market.

Fourteen Irish companies have listed on the small-cap Irish Enterprise Exchange (IEX) in the past year (see story below). Several have plumped for its longer-established British rival AIM. But there have been no full listings on the Irish Stock Exchange since C&C and Eircom in 2004.

"I presume we'll see Aer Lingus and we'll probably see Smur"t, " said Eimear Moloney, investment manager with Eagle Star, identifying this year's most obvious IPO candidates. The climate is favourable for corporate activity in general, she said, from "otations to takeovers.

Market sources suggest it would be no great surprise to see a clutch of new, and some old, faces on the Iseq in the near future. Besides Smur"t and Aer Lingus, other tips on companies most likely to "oat include elearning company Riverdeep and electronic payments specialist Alphyra. Outside chances include wind-energy player Airtricity and Quinn Direct Insurance.

IPO candidates will be considering two key factors. The "rst is how the company itself is performing and how impressive its "gures are likely to be to investors. The second factor is the general sentiment in the market.

Everything else being in order, it would be dif"cult to dissuade any company mulling a stock market "otation in the current climate.

Optimism about future corporate earnings is running high, following a strong reporting season, with the Iseq passing the 8,000 threshold for the "rst time last week.