Currency trading came to a virtual standstill on Wednesday after the industry's trade body urged banks to scale back their foreign exchange trading to counter turbulence in the financial markets in the wake of the terrorist attacks in the US.

The Association Cambiste Internationale appealed to banks to keep trading to a minimum and encourage their clients to do the same.

Heering Ligthart, president of the association, said the attacks may have weakened the ability of some institutions to process trades, creating a danger of instability.

"We have asked banks to make only necessary transactions in order to avoid putting too much pressure on bank's back offices, some of which will have been disrupted," Mr Ligthart said.

The Federal Reserve, the US central bank, also asked the Bank of England to limit its dollar trading.

Strategists said worries over investment banks' ability to process transactions may have also been behind the decision by central banks worldwide to pump more than $80bn of emergency funds into the banking system.

"The concern is that if one payment fails for a trade it may mean that you can't meet one of your liabilities," said one strategist at a European investment bank in New York. "This is partly why extra cash is being made available to meet these unexpected shortfalls."

In a television interview, Sir Edward George, the governor of the Bank of England, appeared to indicate that the measures taken so far were mainly precautionary. He praised the Federal Reserve for taking swift steps to prevent problems in New York's financial infrastructure.

"Now these [payment] systems are working pretty much as normal," he said.

One European investment bank which had back office functions in the World Trade Center said that although they had moved to a disaster recovery site, processing capacity was still below normal. They said they were trading but that volumes were wafer thin.

Another impediment to trade came from damage to the communications network in New York. This led to disruptions to the Electronic Broking System - which banks rely on to trade with other banks.

Mr Ligthart said that the market needed a period of reflection after Tuesday's traumatic events.

"There is a threat that the market might overreact to events and so a couple of days to calm down is necessary," he said. Analysts and traders said, however, that instructions to stop trading were unnecessary. "Nobody wants to do anything today, least of all to be seen to be exploiting the situation," said one analyst at a European bank in London. "Trading is just the last thing on people's minds."

"The spirit of this is very clear," said one trader. "If you have an open position everyone understands that it is legitimate to reduce it. But if you just have a good idea for a new trade this should not be done."