European stock markets were modestly higher in early trading and bonds were lower as losses on Wall Street overnight on profit taking and a mood of consolidation after extended rallies dampened sentiment. But activity was expected to be slow ahead of the US thanksgiving holiday on Thursday.

The euro fell to a new low of 106.69 yen, down nearly 20 per cent in the year to date. Its lows were equivalent to a German mark rate of about 54.55 yen, a post-war trough. Against the dollar the single currency slipped as low as $1.0237 in early European trading, within 1.5 cents of the $1.0104 lifetime low set in July. Concerns that rising oil prices might rekindle inflation in the euro zone were worrying investors.

Oil prices touched their highest level since January 1991 during the Gulf crisis on Monday at $27.07 a barrel for January crude on the New York Mercantile Exchange (NYMEX) and were within 50 cents of these levels on Tuesday.

The yen was steady against the dollar after a slew of supportive comments from Japanese officials.Japan's finance minister Kiichi Miyazawa said Japan would take action in foreign exchange markets if currency rates moved abnormally and vice finance minister for international affairs Haruhiko Kuroda said recent movements in dollar/yen rate were abnormal. "We are watching the markets and thinking of appropriate steps to take," Kuroda told reporters. Euro zone money supply data may be released later on Wednesday which could give further indications on the area's economic health.

In the US, a clutch of economic data is expected including third quarter gross domestic product data at 1330 GMT with a rise of 5 per cent forecast and at 1400 GMT surveys of business sentiment for November are due from New York's NAPM and the University of Michigan.

European stock markets got off to a mixed start, struggling to maintain early light gains and both Frankfurt and London turning negative. At 0920 GMT the pan-European Eurotop index of 300 shares was up 4.47 points or 0.32 per cent at 1418.99 while the narrower Euro Stoxx Index of 50 blue chip euro zone shares was up 21.75 points or 0.51 per cent at 4247.65.

Among leading European blue-chip bourse indices, London's FTSE 100 was up 0.1 per cent, Frankfurt's DAX was up 0.4 percent, and Paris's CAC was up 0.9 per cent.