Milan was the best performer, soaring 6.44 per cent on the local Mib30 index, with Madrid, Frankfurt and Paris all registering gains of more than 5 per cent on the day.
The broking houses are predicting that over the next few months the big pension funds dominating the financial markets will start shifting their portfolios to take into account the fact that for these countries there is effectively just one, $10trillion capital market in which to invest.
David Bowers at Merrill Lynch, the American investment bank said: "We expect EMU [economic and monetary union] to lead to significant changes in investor and corporate behaviour." Investors, he added, will no longer be constrained by currency in choosing whether shares in an Italian company for example, offer better value than a German firm.
The euro itself had a good first day's trading, rising nearly three- quarters of a per cent against the dollar to $1.1792 compared with the initial reference rate of $1.16675 set by European Union finance ministers on New Year's Eve.
Investors' enthusiasm for the "euroland" markets was in sharp contrast to the lacklustre performance of London's FTSE index which closed 3.2 down at 5879.4 on the first day's trading of the year. Sterling, too, had a poor day, slipping one fifth of a penny to 0.7109 euros in what many fear will be a foretaste of life on the margins of the new euro area.
"The euro has had a very auspicious start," said Nick Parsons, City economist at Paribas, the leading French bank. "The volume has been less than on a normal Monday but not a great deal less than you would expect on the first trading day after the New Year." He added: "The pound has performed like a dog. Sterling risks being marginalised as more and more companies switch to presenting their accounts in euro."
Dealers said that many investors were deliberately choosing to put through small orders just to test the system.
"Normally we would see thirty to forty deals of $100m or so. Today there have been lots of $1m, $2m and $5m," Mr Parsons said.
The bond markets saw their first "euro-euro" issue - a 500 million euro bond issued jointly by Nomura, ABN-Amro and Deutsche Bank on behalf of the DSL, a German regional bank. The real test of the depth and liquidity of the euro bond market will come this week when the German government launches its first euro denominated issue.
Banks reported that the changeover weekend had gone without a hitch, with some completing the process earlier than planned. One big German bank, Commerzbank, had had to call in 200 computer staff on Sunday to iron out a mismatch between the bank's software and some healthcare programmes in Frankfurt. The head of trading later called his opposite numbers at other banks to reassure them the bank would be ready to trade on time yesterday morning.
James Tompkinson, who headed the unit responsible for euro conversion at the London offices of Nomura, the Japanese bank, said yesterday that some investors were clearly hanging back. "Trading is relatively slow but then that is normal for the first day back after a long New Year's holiday. There have been no mishaps," Mr Tompkinson said.
In Frankfurt which, next to London, has been the financial centre most in the spotlight because it is home to the new European Central Bank, dealers reported trading running at around a quarter of normal.
"It has gone far more smoothly then any of us dared hope," Mr Parsons said.Reuse content