Reykjavik - Iceland's central bank lowered its key interest rate on Wednesday from 15.5 to 12 per cent, bending to increasing public pressure for a cut to ease the North Atlantic island's financial woes.

The central bank, or Sedlabanki, on Tuesday drew on swap facilities with Denmark and Norway, borrowing some 200 million euros (273 million dollars) from each.

Meanwhile negotiations with government officials in Moscow are ongoing over a Russian loan to Iceland of some 400 billion euros. Following the nationalization of Iceland's three largest banks last week, lack of funds to industry and commerce has become a pressing issue.

The Icelandic commercial banks have rapidly expanded their operations in recent years, and have run up liabilities at least five times that of Iceland's gross national product.

An appeal by Iceland for help from the International Monetary Fund (IMF) is expected by next week at the latest. (dpa)