Britain is offering to provide support to Ireland above and beyond any help it gets from the European Union or the International Monetary Fund.
British Finance Minister George Osborne said Wednesday his country "stands ready to support Ireland" in whatever it needs to do to stabilize its banking system.
Britain is not one of the 16 countries that use the euro and has made deep austerity cuts to avoid a debt crisis of its own.
The pledge appeared to help steady markets in Europe after seven straight days of retreat.
Britain's benchmark FTSE 100 index closed up 0.2 per cent while Germany's DAX gained 0.6 per cent and France's CAC-40 rose 0.8 per cent.
Ireland continued discussions Wednesday with the European Union after the two sides failed to agree on whether the country needs a bailout.
Representatives of the EU, the European Central Bank and the IMF will be in Dublin on Thursday to examine both the government and banks' accounting books.
The EU and IMF rescued Greece in May after it was unable to contain runaway spending but Ireland has insisted it does not want a bailout because it has enough money through the middle of next year.
Housing market collapse
Ireland is also wary of the strings attached to a rescue by the International Monetary Fund, including the prospect of increasing the low corporate tax rates that have attracted business investment.
Ireland is struggling after a collapse in its housing market forced the country to take over three large banks. The 45-billion euro ($62-billion Cdn) cost of that bailout is expected to push its 2010 deficit to 32 per cent of GDP.
That's 10 times what's allowed under EU rules.
British banks would be among the hardest hit by an Irish debt default because they are among the largest investors in Irish bonds.
Investors are concerned that a failure in Ireland could be just another step in a string of bailouts needed to help governments throughout Europe. Traders are also worried about big government debts in Portugal, Spain and Italy.
The euro gained 0.3 per cent against the U.S. dollar early in the afternoon Wednesday in North America, at 1.3535 euros, but the European currency remained near its lowest level since late September.