The Irish Government yesterday moved to dampen expectations that a UK-style recapitalisation of the country's big banks was imminent.

Shares in the three ailing banks soared after reports in the Irish Independent said that the Government had accepted the need for an urgent injection of public money.

While the view in Dublin last night remained that a rescue plan would be unveiled by next week, Brian Cowen, the Taoiseach, played down the reports.

He told Parliament: “International market expectations in relation to capital levels in the banking sector have altered and ... meeting these expectations may be challenging. The Government is considering all options in relation to these matters.”

Mr Cowen also cautioned that a mooted bank recapitalisation scheme could not be a “panacea to all ills” and would not necessarily lead to increased lines of credit for struggling businesses.

Shares in Bank of Ireland fell below €1 last week, down from a peak of €18 last year. At one point the share value dipped to 83 cents, losing 95 per cent over the year. “It's very much retail investors buying into speculation in the press today of some sort of restructuring of the Irish banks,” one Dublin-based trader said of the rally, adding that volumes were low, with institutional investors awaiting detailed news of a rescue plan.

Anna Lalor, an analyst with Goodbody, said: “The pace of something happening has stepped up a gear.”

Mr Cowen insisted under Opposition pressure that if capital were to be injected into the banks that it would go towards securing their credit ratings and would “not automatically be provided as cashflow for Irish business”.

But he said that the central bank had submitted a report to Brian Lenihan, the Finance Minister, on the financial positions of the Republic's six biggest financial institutions. The report confirmed that “all institutions reviewed are in excess of regulatory capital requirements” as of September 30 - the day that the Government announced its €440 billion (£368 billion) bank guarantee scheme.

Mr Cowen said: “The Government's guarantee scheme has been successful in safeguarding the stability of the Irish banking sector and restoring its liquidity position.”

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