(Updates with latest market move)

NEW YORK, Oct 7 (Reuters) - The euro extended gains, rising 3 percent against the yen on Tuesday as steps by the Federal Reserve to backstop the U.S. commercial paper market boosted risk appetite.

The euro last traded at 140.85 yen EURJPY=, up 2.9 percent on the day, after rising as high as 141.06 yen, according to Reuters data.

"The Fed announcement to act as a backstop in the CP market is likely to have a positive reaction in regard to sentiment," said Dustin Reid, senior currency strategist, at RBS Greenwich Capital. "In terms of FX, it should help risk appetite on the margin."

The U.S. Federal Reserve on Tuesday announced the creation of a special-purpose facility with the Treasury Department's blessing to begin buying commercial paper in yet another emergency move aimed at calming chaotic financial markets. For more details, see [ID:nN07426060]. (Reporting by Wanfeng Zhou and Gertrude Chavez-Dreyfuss; editing by Tom Hals)