  Exact diagonalisations of the extended Hubbard model are performed. In the
insulating regime it is shown that the nearest neighbour copper-oxygen
repulsion, $V$, leads to Frenkel excitons in the charge transfer gap at values
of $V$ of the order of copper-oxygen hybridisation, $t$. In the metallic regime
it is shown that the static charge-transfer and density-density correlation
functions diverge as a function of $V$, indicating a charge-tansfer instability
and phase separation. This is accompanied by a softening of the $q \to 0$ mode
of the dynamic correlation functions which is associated with the excitonic
excitations responsible for the superconducting correlations observed in the
proximity of the phase separation boundary of ref. \cite{cv95b}.
