Iceland gives up crown defence and seizes another bank

By Niklas Pollard and Omar Valdimarsson

STOCKHOLM/REYKJAVIK (Reuters) - The Icelandic central bank abandoned efforts to defend the country's currency on Wednesday and the government seized control of a second big bank as the global financial storm battered the island's economy.

Prime Minister Geir Haarde said Iceland had not asked for help from the International Monetary Fund, which has sent a delegation to Reykjavik on a fact-finding mission.

But he said assistance from the Fund was "definitely an option" and separately said negotiations to secure a 4 billion euro (3.16 billion pound) loan from Russia would begin next Tuesday.

"I'd like to underline that we have not, at this point at least, asked the IMF for a standby facility or an economic programme," Haarde told a news conference.

With two of the island's biggest banks now under state control, the market is focussed on top bank Kaupthing to see if it can weather a crisis that threatens Iceland's entire banking system.

Kaupthing was forced to take an emergency loan from Sweden on Wednesday for its Swedish unit, which has been put up for sale. The bank's shares dived in Stockholm by 34 percent before they were suspended.

The Swedish central bank said it would lend the Swedish arm of Kaupthing up to 5 billion Swedish crowns (406 million pounds).

The Icelandic crown, hammered in recent days, plunged again and the central bank abandoned a two-day attempt to hold it at 131 per euro -- what Commerzbank called "the shortest peg in history."