FOREX-Euro holds gains vs dlr, stg sinks to 2-1/2 yr low

* Euro holds tepid gains vs dollar, yen

* Stg hits 2-1/2-yr low; banks, govt discussed fund injection

* Trichet, Bernanke to speak later on Tuesday

By Tamawa Kadoya

LONDON, Oct 7 (Reuters) - The euro held on to tepid gains against the dollar <EUR=> on Tuesday while sterling hit a 2-1/2 year low against the U.S. currency on renewed fears about the UK banking system.

Currencies were whipsawed, hovering between extreme anxiety over the banking system and hopes that governments would deliver a credible solution to the financial crisis.

UK banking shares were hammered after reports that some major lenders may need additional funds from the government.

An injection of capital by the UK government into British banks was one of the options discussed between the Treasury and banking industry officials at a meeting on Monday evening, a source familiar with the talks said. See story [ID:nL737099]  Continued...