The yen was up against the majors as European banks were damaged by rumours of further losses relating to fallout from the US subprime market.

It rose to 157.75 per euro in early London trading, up from 158 at close of New York trading on Monday.

And the Japanese currency made gains against the US dollar, rising to
115.87 from 115.97.

Trading between the euro and the dollar has seen the greenback move up to 1.3615 from 1.3624.

However, the yen's fortunes may decline in the near future if the Bank of Japan freezes interest rates.

A low base rate of 0.5 per cent makes the yen attractive to currency traders who use it to fund riskier investments elsewhere.

Carry trading has helped the pound stay near a three-month high against the euro as stable financial markets tempt investors into riskier deals.