Fears over the worsening state of the Irish economy hit currency markets on Wednesday, following media reports that Brian Cowen, prime minister, had raised the possibility of a bail-out by the International Monetary Fund if public sector unions refused to accept big pay cuts.

Mr Cowen, who is in Japan on an official visit, later denied there had been any mention of an IMF rescue in talks last week with trade unions. The fund said it had not been approached by Dublin.