Page last updated at 15:04 GMT, Wednesday, 2 April 2008 16:04 UK

Iceland's economy 'under attack'

Geyser erupts in Iceland
Iceland says it is under attack by speculators

Iceland is considering intervention in its currency and stock markets to fight hedge funds that it says are attacking its financial system.

The country's prime minister, Geir Haarde, told the Financial Times that it was being unfairly targeted.

The Icelandic currency has lost a quarter of its value against the euro this year as rumours of a financial and banking crisis have swirled.

Last week, the country's central bank made an emergency interest rate rise.

"The central bank and the government have several means at their disposal to influence this situation and we have not used all of them yet," Mr Haarde said.

"We would like to see these people off our backs and we are considering all the options available."

He said hedge funds wanted to make a profit "by hook or by crook".

Rumours swirl

The government believes that speculators may have spread false rumours to create fears of a banking crisis in order to profit from short positions on the Icelandic krona and stock market.

Short positions are bets that a stock or currency will fall in value.

The country's financial watchdog has launched an investigation into the the alleged market manipulation.

Concerns

Credit ratings agencies Fitch and Standard & Poor's have signalled concern about the health of Iceland's economy and its three main banks - Kaupthing, Glitnir and Landsbanki.

The three banks have funded expansion overseas by selling debt but the rise in the cost of credit worldwide has raised concern that their strategy could falter.

But Fitch said that Iceland's banks had sufficient liquidity and were able to operate without recourse to global capital markets for "some months to come".

The ratings agencies have expressed concern that Iceland may have to support the country's banks to avert a possible financial crisis.




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