CNN) -- Iceland seized control of its second largest bank Tuesday while UK bank shares fell sharply amid rescue rumors and EU leaders scrambled to shore up confidence and prevent market meltdown.
Landsbanki CEO Sigurjon Arnason poses in front of a sign in a file photo.
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The Icelandic Financial Supervisory Authority said it had taken over Landsbanki a day after the country adopted sweeping controls over its crisis-stricken banking sector.
The country, home to 300,000 people, has also negotiated a €4 billion ($5.4 billion) loan from Russia to ward off national bankruptcy caused by the huge debts taken on by its banks in overseas expansion, the central bank said. Reports quoting Russian officials denied the loan.
Meanwhile online bank Icesave, a subsidiary of Landisbank, said on its UK Web site it was halting all withdrawals and deposits.
Another Icelandic bank, Kaupthing, said the central bank was giving it a €500 million ($678.8 million) loan to keep it operating. Kaupthing is based in Iceland and operates in 15 other countries.
In the UK, shares in Royal Bank of Scotland slumped by 40 percent at one point, adding to 20 percent losses a day earlier, amid reports leading banks had asked the government for a cash injection.
Shares in Lloyds TSB also dropped at one point by 16 percent and Barclays by nearly 10.
The losses came as Europe's finance ministers, under fire for failing to strike a coordinated response to the global financial crisis, were mulling a EU-wide guarantee on private bank savings up to €100,000 ($135,000).
"The main issue is ensuring confidence and stability throughout our European banking system," Irish Finance Minister Brian Lenihan told reporters.
Ireland has said it will guarantee all deposits in six major banks, with Greece, Austria, Iceland, Portugal, and Germany all since promising similar measures. Denmark, Sweden and the UK have all increased their guarantee limits.
European markets quickly lost opening gains Tuesday, with London's FTSE, Frances CAC and Germany's DAX dropping into negative territory before rallying again later.
Russia's main RTS and MICEX exchanges were closed Tuesday morning after both took a beating. They were due to re-open at 1 p.m. The RTS index fared worst, falling about 20 percent, losing 9 percent of its value in the first half hour.
Watch how falling oil is hitting Russia » Don't Miss Earlier, Japan's Nikkei ended down 3 percent, Bombay's BSE SENSEX slipped half a point while a bigger-than expected interest rate cut in Australia cheered Taipei by a third of a point and South Korea's KOSPI by half a percent .
On Monday, an ominous day on Wall Street saw the Dow Jones index drop below 10,000 points for the first time since October 2004, as the credit crisis tightened its grip on banks and other financial institutions.
The Dow erased more than half those losses, finishing the day down 3.6 percent.
London's FTSE 100 ended down 7.9 percent, the biggest one-day fall since 1987; the CAC 40 in Paris skidded 9 percent, and the XETRA DAX in Frankfurt tumbled 7.1 percent.
Latin American markets also took a beating Monday.
Argentina's MerVal sloughed off 5.9 percent of its value. Both Brazil's Bovespa and Mexico's IPC slipped 5.4 percent.
The slides come amid days of unrelenting financial turmoil and despite the passage by U.S. lawmakers of a $700 billion bailout plan late Friday.
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