Sterling hit by bets Iceland row will grow

Sterling was off 1.4 cents against the dollar at 1.6975 while the euro gained almost 0.6p to 79.79p.

Lee Wai Tuck, a currency strategist at Forecast in Singapore, said: "There are some worries over the UK's exposure to Iceland.

"The British have put money into Iceland's banks and they are not able to access that."

The British Government expects to pick up the tab for the money UK savers have trapped in Iceland's failing banks.

The pound also fell against the yen.