WRAPUP 6-Iceland cuts rates, Russia studies loan request
* Iceland slashes interests rates
* Russia agrees to consider loan request
* Belgium, EC say ready to help
By Patrick Lannin and Omar Valdimarsson
REYKJAVIK, Oct 15 (Reuters) - Iceland acted to shore up its ravaged economy by slashing borrowing costs on Wednesday and its officials pursued efforts with Russia to get a multi-billion euro loan to help it over its worst financial crisis.
Talks in Moscow ended with Russia agreeing to consider the request for a loan which the North Atlantic island initially put at 4 billion euros ($5.45 billion). No date was set for a new round of discussions.
"We are working thoroughly on the issue to take a final decision", Russian Deputy Finance Minister Dmitry Pankin said in a statement after talks ended.
Russian officials say no details have been agreed although they are looking on the loan request favourably.
Icelandic Prime Minister Geir Haarde said the delegation might stay in Moscow or return to Iceland to continue talks from home as the government grapples with a crisis that has brought down the banking system and made the local currency untradeable.
"But it would be best if this could be resolved now," he told a news conference in Reykjavik.
Importers said on Wednesday the country had food stocks for about three to five weeks but needed quickly to restore a proper foreign exchange market so that importers could get back to normal business and avoid shortages.
Earlier, the central bank cut its main interest rate to 12 percent from 15.5 percent.
In Brussels, European Commission President Jose Manuel Barroso said it was to help Iceland over the financial crisis.
And Belgium offered a lifeline to Kaupthing Bank, where thousands of Belgians have savings, and said Prime Minister Yves Leterme would meet Haarde in Iceland on Friday.
"We are trying to see how we can help through an intervention of the IMF (International Monetary Fund)," Belgian Finance Minister Didier Reynders said on arrival at a European Union summit.
Iceland is due to present a plan to the Washington-based IMF in the coming days and is widely expected to seek funds.
Iceland's crisis is an unusual situtation for the IMF. Its economy of some 300,000 people is highly developed and years of rapid growth have brought it unprecedented prosperity.
Icelandic banks in recent years embarked on a campaign of unbridled expansion, building up operations overseas but taking on huge debts. When global credit markets froze, the banks found themselves unable to meet obligations.
Now, with the economy reeling, people are confused.
"You do not know what is happening, you do not feel informed. Will the IMF come and take control?" said Arni Gudmundsson, a 29-year-old self-employed man.
He said the rate cut was a good idea. "And I think they will have to take them down further simply in order for people to survive."
BORROWING COSTS
Iceland has had high interest rates for several years as the central bank has tried unsuccessfully to rein in inflation.
"The next phase of the banking crisis will be difficult with severe economic contraction," Sedlabanki said in a statement released in Icelandic on its Web site.
The crisis would mean the loss of many jobs, it added.
The rate cut "will help companies that will now have to be financed by Icelandic banks. This will be a big help for them," said Asgeir Jonsson, analyst at Kaupthing. He said inflation would be countered by the sharp fall in the housing market, which accounts for 20 percent of the consumer price index.
Kaupthing, the largest bank in Iceland, was taken over last week by the state along with Landsbanki and Glitnir.
"The main thing is that they have to stabilise the currency and get the payments system going again," Jonsson said.
A NEW SYSTEM
On Tuesday, Iceland drew on swap facilities it had set up with Nordic nations, tapping Denmark and Norway for 200 million euros ($273 million) each to help get its currency market working again.
Sedlabanki said it had set up a temporary trading system to allow for international currency transactions, while it wanted to continue to limit foreign currency outflows from the country.
Haarde said Iceland had approached the NATO council to complain about Britain's use of anti-terrorism laws to take Iceland's largest bank into administration.
President Olafur Ragnar Grimsson told Reuters that Icelanders were still angry with Britain. Icelanders understood that their own banks had created the problems they now faces by overextending themselves.
"We are realistic, we have a strong fighting spirit. We realise this will be an uphill battle, but there is also a strong sense of determination and optimism among everyone I have met," he said." (Additional reporting by Adam Cox, Niklas Pollard and Anna Ringstrom in Stockholm, Lesley Wroughton in Washington, Ingrid Melander in Brussels, Toni Vorobyova and Dmitry Zhdannikov in Moscow; editing by Angus MacSwan)
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