REYKJAVIK (AFP) - Russia will grant Iceland's central bank a loan of four billion euros (5.4 billion dollars) to help the Nordic country fend off the raging financial turmoil, the Icelandic bank said Tuesday.

"The Russian ambassador to Iceland, Victor I. Tatarintsev, informed the chairman of the board of governors of the central bank of Iceland this morning that Russia would grant the central bank a loan in the amount of four billion euros," the bank said in a statement.

"The maturity is three to four years," it said, adding that Russian Prime Minister Vladimir Putin had confirmed Moscow's decision.

"The Icelandic prime minister initiated contacts concerning this agreement some months ago. Representatives from the central bank of Iceland and the government will finalise the agreement in Moscow," the statement said.

"This loan significantly bolsters the foreign exchange reserves of the central bank of Iceland and thus underpins the stability of the exchange rate of the krona," it added.

The announcement came as Iceland's Fiancial Supervisory Authority announced it would take control of the country's second largest bank, Landsbanki, after Prime Minister Geir Haarde said Monday his government was ready to take over all the island's banks to ward off the prospect of national bankruptcy.

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