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Reuters reports the pound briefly touched a two-week high against the dollar on the news insurance company Prudential may have withdrawn its bid for the Asian operations of US firm AIG.
At 16:03 BST, the British currency was up 0.8 per cent to $1.4485, having earlier hit $1.4587.
The euro also climbed against the pound, rising 0.2 per cent to be priced at 84.8p after dropping to an 11-month low of 84.22p earlier in the day.
However, this gain did not prevent it from being on track for the greatest weekly percentage fall versus the pound since last month.
"A key question is whether recent volatility in financial markets has dented sentiment and will have a material impact on growth prospects," Paul Robinson of Barclays Capital was quoted as saying.
The FTSE 100 stock market also ended the day higher, boosted largely by gains from energy and mining stocks.
Posted by Greg Secker
