Reykjavik/Moscow - The Icelandic currency stabilized Tuesday after the central bank said Russia would grant a loan "in the amount of 4 billion euros (5.4 billion dollars)" for the coming four years.

Later the central bank said the countries "have decided to start in the next few days negotiations on financial issues," suggesting there was no done deal.

The statement was apparently in response to reactions from the Finance Ministry in Moscow which said no decision had been made, according to remarks attributed to deputy Finance Minister Dmitri Pankin by the Interfax news agency.

Russia has plentiful foreign reserves as a result of several years of record oil prices.

Cash-strapped Iceland needs the foreign exchange.

Late Monday, the Icelandic government, backed by opposition parties, adopted an "emergency law" to reorganize its financial system which has been severely battered.

The Icelandic Financial Supervisory Authority took over the operations of the Landsbanki bank on Tuesday under the provisions of emergency laws passed late Monday.

The agency said Landisbanki's domestic deposits were "fully guaranteed" in accordance with a previous government statement.

The bank's operations were to be open for business "as usual," the agency added.

The nation's largest bank Kaupthing said Tuesday it "not been approached" by the agency but had cornered a 500-million-euro loan from the central bank "to facilitate operations."

Prime Minister Geir Haarde said Monday in a televised speech to the nation that the bank crisis also posed a national threat.

"There is a very real danger, fellow citizens, that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy," he said.

The new legislation was to "adapt the banking system to Icelandic circumstances and rebuild the trust of foreign operators in Icelandic banking and financial operations," Haarde said.

The commercial banks in the North Atlantic nation of 300,000 people have rapidly expanded their operations in recent years, and "their liabilities are now equivalent to many times Iceland's GNP," Haarde added.

Under the special powers, he said the government "aimed for the sale by Icelandic banks of foreign assets and a reduced presence abroad, so that the Icelandic state, so small in comparison with the Icelandic banks, would have the capacity to support them."

The measures came after the Icelandic Financial Supervisory Authority on Monday said it was temporarily suspending trading of shares and other financial instruments issued by several banks including Glitnir bank, Kaupthing bank and Landsbanki.

Haarde said the government would "fully" cover all deposits in domestic commercial and savings banks.

A week ago, the government of Iceland bought a majority stake in Glitnir bank.

The government paid 600 million euros for a 75-per-cent stake in Glitnir, saying the move was aimed at strengthening Glitnir's capital ratio and liquidity.

The Icelandic currency, which came under attack from speculators earlier this year, has dropped in value compared to the euro and the dollar, with the country suffering from some 15-per-cent inflation. (dpa)