Retailers were first to feel the effect of the millennium bug in Britain as thousands of credit card swipe machines failed because they did not recognise the year 2000 date.

Meanwhile, the global airline industry, which has invested some $3 billion (€3 billion) to squash the Y2K bug, has said passengers can be assured of smooth flying into the new year.

"We expect it to be rather a big yawn," said a spokesman for the International Air Transport Association (IATA).

Retailers, mainly smaller shops starting up after the four-day Christmas break were affected by the glitch in equipment supplied by HSBC, one of Britain's big four banks.

The government's bug-busting unit Action 2000 said the problem was a result of the bug.

But it stressed credit card transactions could still be processed through the machines and said no "material disruption" had been caused.

The first warning signs of potential problems came on the same day that the government introduced its official bug-tracking website to monitor developments in Britain and overseas.

A spokeswoman said: "Action 2000 has always said that minor problems are inevitable in a project of this scope and will not be restricted to December 31st."

A spokesman for HSBC, formerly known as Midland Bank, said: "The problem has arisen because these new swipe card terminals, installed in the summer, have a look-ahead facility spanning four working days.

"When they looked ahead and compared, say, December 28th, 1999 with January 1st, 2000, they thought something was wrong and failed to function because they read the second date as January 1st, 1900.

"This problem will disappear when we get to January 1st because the terminals will be comparing January 1st, 2000 with January 5th 2000 - both in the same year - and will see no problem with that.

"The number of terminals involved is 20,000, of which 14,000 are supplied by us and 6,000 by other banks."

The swipe card machines are made by electronics firm Racal. A Racal spokesman said: "We don't know how this particular problem was missed in our checking over the year 2000 date change but we are working very hard to put it right.

The Bank of England said a solution to the problem, which cropped up for the first time on Tuesday, had been found so that consumers should not be inconvenienced.

After investing some $3 billion to squash the Y2K bug, the global airline industry believes passengers can be assured of smooth flying into the New Year.

Over the last 18 months, IATA has invested some $30 million to monitor what Y2K preparations have been made by 265 airlines, 2,000 airports and more than 180 air traffic control services around the world.

Another global organisation, Airports Council International, has had its 1,350 member airports run through a Y2K checklist for their systems.

"We are satisfied with the progress we've seen. Everyone at both airports and air traffic control systems has taken the subject very seriously, made the right investments, made the right efforts," said Mr William Gaillard, IATA spokesman. "We don't anticipate anything extraordinary happening."

The airline industry will get a reprieve of sorts from the bug because New Year's Eve passenger traffic will be only a fraction of normal holiday travel volumes. Most major airlines have drastically cut flights over the period due to lack of passengers.

IATA has worked closely over the past two years on its Y2K preparedness programme with the Canadian-based International Civil Aviation Association, the specialised United Nations agency created in 1944 to promote and set international standards for civil aviation.

To date, 170 of civil aviation group's 185 contracting states, have supplied detailed information on the steps they have taken to protect their airports, airlines and air traffic control systems against the Y2K bug.

"The ones we don't have information on are generally small islands in the Pacific, in areas where there is probably no concern about either traffic or Y2K issues," said Mr Brian Bowers, a consultant on its plan.

The group said states representing 99.5 per cent of international air traffic reported that their air traffic systems are Y2K-ready or will be before December 31st. After analysing the data received from the world's top 25 airports and 50 top airlines, which account for roughly 85 per cent of international passenger traffic, officials are also convinced of their readiness.

Each reporting state has also set up a contingency plan designed to mitigate the impact of unforeseen events.

With all that preparation, civil aviation officials are not expecting major mishaps, but smaller events such as local power or equipment outages for radar, navigation and communications.