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Oct. 7 (Bloomberg) -- Iceland got a 4 billion-euro ($5.43 billion) loan from Russia, pegged the krona to a trade-weighted index and nationalized the nation's second-biggest bank after the currency's slump and bad debts crippled the financial system.
The fixing of the krona, at a rate corresponding to 131 per euro, applies for today, according to the Icelandic central bank's Web site. Further moves to boost the currency will be announced in coming days, it said.
The liquidity crisis has pushed down the krona as much as 31 percent against the dollar in the past 30 days as a shortage of credit batters economies reliant on debt. Prime Minister Geir Haarde last night guaranteed domestic bank deposits and gave regulators the power to take over the assets of banks that have run up debts equivalent to 12 times the size of the economy.
``Russia wants to show that it's a financial power and is willing to help solve the global crisis,'' said Beat Siegenthaler, chief emerging markets strategist in London at TD Securities Ltd. ``There are more questions as to why Iceland was not able to get a similar loan from the Nordics or from the European Central Bank or the U.K.''
Before the announcement, the krona fell to as low as 234.5 per euro, according to prices from Nordea Bank AB, Scandinavia's biggest bank.
Iceland's Financial Supervisory Authority today took control of Landsbanki Islands hf, the nation's second-biggest lender, and the central bank gave a 500 million-euro loan to Kaupthing Bank hf, the biggest.
Russia wants to show that it's a financial power and is willing to help solve the global crisis,'' said Beat Siegenthaler, chief emerging markets strategist in London at TD Securities Ltd.
"It's looking very gloomy for Iceland at the moment,'' said Bjarke Roed-Frederiksen, an economist in Copenhagen at Nordea. "The currency isn't trading at the price the central bank has set and we're already seeing signs that people don't want to accept krona in transactions on Iceland.''
Iceland's fast-moving financial crisis deepened on Wednesday as the government seized control of a large bank it had planned to prop up and the central bank failed to defend the country's currency.
Kaupthing , the island's top bank, was forced to take an emergency loan from Sweden and put its Swedish unit up for sale. Its shares dived on the Stockholm stock exchange by 34 percent before they were suspended.
Iceland financial pressure remains 1 hour ago Britain added to the financial chaos engulfing Iceland by declaring that it planned to sue over lost deposits held by thousands of Britons with Icelandic bank accounts. The news from London even overshadowed an emergency loan from Sweden to Iceland's biggest bank. The promise of legal action by the British government to recover deposits belonging to 300,000 British account holders with the Icesave Internet bank came after its parent, Landsbanki, was placed in receivership. "We are taking legal action against the Icelandic authorities," British Prime Minister Gordon Brown told journalists in London. "We are showing by our action that we stand by people who save."