Iceland minister worried elections could hit talks

NEW YORK (Reuters) - Iceland's economic affairs minister on Thursday said he was concerned that pending elections in the United Kingdom and Netherlands could interfere with his country's ability to resolve a dispute with its two neighbours over the failed online bank Icesave.

Gylfi Magnusson said in an interview with Reuters Insider television that Iceland remains ready to sit down immediately with U.K. and Netherlands officials to reach an agreement.

"We would definitely prefer that these talks happen sooner than later but we don't control the political process in the UK or Netherlands," Magnusson said.

He also said that the Icesave standoff is the principle obstacle to securing a much-needed IMF loan.

In March, Icelanders overwhelmingly rejected the terms of a deal to repay Britain and the Netherlands more than $5 billion lost by foreign savers in Iceland's banking collapse, principally from online accounts with Icesave.

Earlier this week, Moody's Investors Service downgraded its outlook for Iceland to negative from stable, an indication that the country could lose its investment grade status in 12 to 18 months. Moody's currently rates Iceland Baa3, one notch above non-investment, or junk, status.

Fitch has already lowered its credit rating to junk territory. Standard & Poor's, like Moody's, rates it one notch above junk at BBB-.

Magnusson said the threatened loss of investment grade status is a concern raised by potential investors he met with during a trip to New York this week. On Wednesday, he was in Washington, meeting with IMF officials about its aid request.

A downgrade from Moody's would make investors less inclined to invest in Iceland, he said.

Asked whether he was worried about the recent tick back up in the country's credit default swaps -- a measure of investor anxiety -- Magnusson replied: "We don't like it."

"We will do whatever we can to calm the markets," he said.