Iceland is considering intervention in its currency and stock markets to fight hedge funds that it says are attacking its financial system.

The country's prime minister, Geir Haarde, told the Financial Times that it was being unfairly targeted.

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Last week, the country's central bank made an emergency interest rate rise.

"The central bank and the government have several means at their disposal to influence this situation and we have not used all of them yet," Mr Haarde said.

"We would like to see these people off our backs and we are considering all the options available."

He said hedge funds wanted to make a profit "by hook or by crook".

Rumours swirl

The government believes that speculators may have spread false rumours to create fears of a banking crisis in order to profit from short positions on the Icelandic krona and stock market.

Short positions are bets that a stock or currency will fall in value.

The country's financial watchdog has launched an investigation into the the alleged market manipulation.

Concerns

Credit ratings agencies Fitch and Standard & Poor's have signalled concern about the health of Iceland's economy and its three main banks - Kaupthing, Glitnir and Landsbanki.

The highly-indebted banks have been found it hard to borrow on jittery credit markets over fears that they could default on debt.

The ratings agencies have expressed concern that Iceland may have to support the country's banks to avert a possible financial crisis.

(BBC)

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