By Omar Valdimarsson and Keith Weir
REYKJAVIK/LONDON (Reuters) - Iceland said Russia had offered it an emergency loan of four billion euros on Tuesday and Britain considered injecting capital into its banks to rescue victims of the global financial crisis.
Australia responded to the growing crisis by cutting its interest rates by 100 basis points, increasing the pressure on Western governments and central banks to come up with a coordinated response.
Iceland, a country of 300,000 in the North Atlantic, is battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas.
The country's market authority took control of Landsbanki using sweeping new powers introduced overnight. Russia would provide a loan of 4 billion euros ($5.44 billion), the Icelandic central bank said.
However, Russia's deputy finance minister Dmitry Pankin said Russia had not made any decision on lending money to Iceland.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession. Conditions remained poor for lending between banks.
Shares in some of Britain's biggest high street banks tumbled on news of funding talks with the government.
Royal Bank of Scotland was the biggest loser, with its shares down more than 30 percent to a 13-year low.
"The big banks and the chancellor met yesterday night. Recapitalization is one of the options being considered," a source familiar with the talks said.
U.S. officials have called for a "forceful and coordinated" global reaction to kickstart anaemic bank lending but such a unified approach remains elusive.
"Policymakers urgently need to get some traction in their policy initiatives, if disaster is to be avoided," Barclays Wealth told its clients in a note.
"Policymakers cannot make any more mistakes: the clock is ticking, and it is one minute to midnight," it added.
RATE CUTS?
Sparked by the collapse in the U.S. housing market and increase in bad loans, the crisis is the worst to hit the banking world in 80 years. People around the world are worried about protecting their savings and keeping their jobs as some of the pillars of global finance give way.
European Union finance ministers were meeting in Luxembourg to try to flesh out promises to counter market mayhem and ensure no savers lose any money. The EU has been criticized for its fragmented response to the crisis and the way individual countries have broken ranks with deposit guarantees.
"We need to find a common solution as one country's solution may be another country's problem," said Swedish Finance Minister Anders Borg.
Russian President Dmitry Medvedev was meeting top state bankers in the Kremlin on Tuesday to discuss measures to fight what he termed the "large-scale financial crisis."
Russia's benchmark RTS stock index shed 19 percent on Monday in the worst daily showing of its 13-year existence.
Economists said the Australian rate cut might be followed in Europe and the United States.
"If the need is there to get rates down toward something that's more neutral, then why dilly dally? Get it done in one go," said Brian Redican, an economist at Macquarie. "It's a flexibility other central banks should take careful note of."
Japan's central bank, with far less room to maneuver, voted to keep rates unchanged, but gave a grim prognosis for the economy that hinted at more actions to boost liquidity.
Fed fund futures have priced in a probability of a 75 basis-point cut by the U.S. central bank this month.
The Bank of England is expected to cut rates on Thursday and the European Central Bank last week flagged it too could lower its rates.
However, there were already doubts about whether the aggressive rate cut in Australia could shock the country's banks back into lending, with the National Australia Bank holding off on lowering its standard variable rate until markets calmed.
(Reporting by Reuters bureaus worldwide; Editing by Jean Yoon and Ralph Boulton)
