Iceland nationalized its second-largest bank Tuesday under emergency legislation and said it was negotiating a 4 billion-euro ($5.4 billion) loan from Russia to shore up the nation's finances amid a full-blown financial crisis.

The central bank also loaned 500 million euros ($680 million) to Kaupthing, the country's biggest bank, to tide it through the crisis.

As the government scrambled to gain control, the central bank first announced that it had secured the Russian loan, then backtracked and said the countries had agreed to open talks on "financial issues" soon.

Russian Finance Minister Alexei Kudrin said Russia was favorably inclined toward Iceland's request for credit, the Interfax news agency reported.

Prime Minister Geir H. Haarde told reporters that Iceland had sought help from other countries, but only its Nordic neighbors had given support. "In a situation like that, one has to look for new friends," said Haarde, refusing to identify any countries that had rebuffed Iceland's appeals.

The takeover of Landsbanki came a day after trading in shares of major banks was suspended, the Icelandic krona lost a quarter of its value against the euro and the government rushed through emergency legislation giving it sweeping powers to deal with the financial meltdown.

"As declared by the government, all domestic deposits are fully guaranteed," the Financial Supervisory Authority said. "Landsbanki's domestic branches, call centers, cash machines (ATMs) and Internet operations will be open for business as usual."

Icesave, Landsbanki's Internet service, stopped processing deposits and withdrawals, according to a brief announcement on the Web site.

Within hours of the government move, the Samson holding company, which held a 41 percent stake in Landsbanki, went to the district court seeking temporary protection from its creditors.

Iceland's central bank said in a statement that it had been informed by the Russian ambassador, Victor I. Tatarintsev, that Iceland would be given a loan of 4 billion euros ($5.4 billion), and that this had been confirmed by Prime Minister Vladimir Putin.

However, the Russian state news agency RIA-Novosti quoted Deputy Finance Minister Dmitry Pankin as saying there had been no formal approach from Iceland and no decision had been made. Iceland's central bank followed with an amended statement: "It should be emphasized that the countries have decided to start in the next few days negotiations on financial issues."

A loan would support the government's efforts to gain control of an increasingly dire financial situation, which saw the government coming to rescue of the third-largest bank, Glitnir, only last week.

Haarde warned late Monday that the heavy exposure of the tiny country's banking sector to the global financial turmoil raised the specter of "national bankruptcy."

Iceland is paying the price for an economic boom of recent years that saw its newly affluent companies go on an acquisition spree across Europe and its banking sector grow to dwarf the rest of the economy. Bank assets are nine times annual gross domestic product of 14 billion euros ($19 billion). Continued...