Iceland has become deeply embroiled in the credit crisis
Share trading in six of Iceland's biggest financial firms has been halted temporarily, the country's stock exchange has said.
The includes the country's three biggest three banks, Kaupthing, Landsbanki and Glitnir.
Iceland's government said it was drafting a plan to deal with the country's financial crisis.
Banks now dwarf the rest of the economy, leaving Iceland heavily exposed to the global credit squeeze.
The Iceland Stock Exchange said it had decided to temporarily suspend trading to protect investors' interests while waiting for a government announcement on its plans.
The country's largest banks have now agreed to sell off some of their foreign assets and bring them home, to help bolster the banking sector.
This money will be brought back into Iceland, in an effort to shore up the economy and prevent the currency, the krona, from sliding any further. Last week, it lost a fifth of its value against the dollar.
The deal, which was announced by Geir Haarde, Iceland's prime minister, came after frantic talks with political, financial and trades union leaders.
As the crisis in Iceland has unfolded, the government was forced to nationalise Glitnir, the third largest bank, last week.
The government is now trying to persuade the trade union pension funds to repatriate some of their funds too.
After marathon talks at his lakeside residence in Reykjavik, Mr Haarde announced part of a deal late on Sunday.
He said it had been agreed that Iceland's banks had grown too big and now needed to sell off part of their overseas assets.
The government also wants the trade unions to return a sizeable portion of their foreign-invested pension funds to Iceland.
To help stabilise Iceland's troubled economy, the unions are also being urged to agree to wage restraint, despite the country's inflation rate of 14%.
But in return, the unions want Iceland to apply for EU membership - a move it has resisted for decades.
Iceland's economy was traditionally based on fishing, but in the 1990s the banks boomed, expanding abroad and growing to several times the size of the national GDP.
The government stepped in to nationalise Iceland's third largest bank, Glitnir, last week.
The nationalisation led ratings agencies to downgrade Iceland's credit rating.
Analysts have warned the troubled banking sector may be too big for Iceland to be able to save.
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