Stockholm/Copenhagen - The central banks of Denmark and Sweden on Tuesday said they have signed a swap agreement with the central bank of Latvia guaranteeing short-term loans of up to 500 million euros (675 million dollars).

The swap agreement allows Latvijas Banka to borrow euro against Latvian lats "when and if the need arises," the statement said.

The Swedish Riksbank said its share was 375 million euros.

The announcement came in the wake of a recent package of measures announced by the Latvian parliament to tackle the financial problems that have hit the Baltic country, which were a prerequisite for a possible loan from the International Monetary Fund (IMF).

"It is important that central banks cooperate and assist each other in times of financial crisis," Swedish central bank governor Stefan Ingves said in a statement.

"There is also a risk that a financial crisis in Latvia could spread and create unease on the financial markets in Sweden and our neighbouring countries," he added.

In May, the Icelandic central bank signed a similar loan swap agreement with the central banks of Denmark, Norway and Sweden. (dpa)