Icelandic stock market plunges a massive 76 per cent as the rest of the world enjoys huge gains

The Icelandic Stock Market plunged a massive 76 per cent today in stark contrast to markets elsewhere around the world.

As shares in the UK, Asia and Europe soared after record gains on Wall Street last night, Iceland's blue chip index crashed through the floor.

It is the market's first day of trading since last Wednesday and the fallout from the almost total collapse of its financial sector came home to roost immediately.

Despite trading remaining suspended in six banks, there were huge losses which will take the Icelandic economy even closer to collapse.

Plunge: Iceland's stock exchange tumbled a massive 76 per cent today as it re-opened for the first time since last Wednesday

Plunge: Iceland's stock exchange tumbled a massive 76 per cent today as it re-opened for the first time since last Wednesday

Officials are in Russia today asking for an emergency loan - potentially worth billions of euros - to shore up its finances.

Iceland has already asked the International Monetary Fund for help to ease the crisis and ministers have suggested it should join the EU to safeguard the economy.

Frozen credit markets have brought the country to its knees and the Government is battling to keep the banking system afloat.

The state has been forced to takeover three of the country's largest banks in recent weeks, freezing accounts held by individuals, charities and public sector bodies in Britain.

Individual investors have had their savings guaranteed by the Treasury, but the councils appear certain to lose their investments. Charities are believed to have lost £120 million.

The Bank of England is loaning £100million to the British arm of collapsed Icelandic bank Landsbanki to help repay British savers.

Talks are also under way between Treasury officials and the Icelandic government to try and get back the money lost by town halls.

Over the past decade, Iceland's financial sector bloomed to bring unprecedented prosperity to its 300,000 population.

It won favour with foreign savers and investors because of its attractive interest rates but the global financial crisis has left the entire country foundering.

Beat Siegenthaler, chief strategist emerging markets at TD Securities in London, said today: 'It is clear that Iceland will need substantial foreign aid in order to prevent further major damage to the economy.'

Today's shares plunge came as it emerged city middlemen may have profited from the loss of British taxpayers' money in the banking crash.

Iceland's Prime Minister Geir Haarde accused Britain of 'bullying a small neighbour' with its response to the crisis


One major broking firm has acknowledged that commissions could have been paid by the failed Icelandic banks in return for investments made by local councils and other public sector organisations.

Evidence has emerged that firms acting as paid financial consultants to town halls may have advised officials on investments.

Concerns over the role of financial advice firms were raised as the council that lost the most - Kent - began an inquiry into how it came to put £50million into the collapsed institutions.

Leaders called in accountants PricewaterhouseCoopers to 'independently assess the advice given to Kent County Council and to review the operation of the internal control process'.

Councils were in many cases advised on their investment policies by independent firms.

One, Butlers, is part of ICAP, the City broker run by Tory Party treasurer Michael Spencer.

ICAP said yesterday it was 'possible' that it had received commission from Icelandic banks on investments made by councils advised by Butlers.

A spokesman said that Butlers - retained by 130 councils - does not take commission from banks or give direct investment advice.

However Kent said in a statement that it had 'regular meetings with Butlers, our advisers'.

The other major adviser to councils and other public bodies is Sector Treasury Services, a subsidiary of the Capita group, which has contracts with 250 authorities.

Sector has said it does not advise councils on where to invest. However, this is contradicted in documents obtained by the Mail.