Cyprus bailout cost jumps

CYPRUS has confirmed the cost of its EU-IMF bailout has surged to 23 billion euros ($A28.7 billion) from 17.5 billion euros, putting the already teetering economy in danger of collapse and further endangering large bank depositors.

"It's a fact the memorandum of November talked about 17.5 billion (euros) in financing needs. And it has emerged this figure has become 23 billion," said government spokesman Christos Stylianides.

That means Cyprus will now have to find 6.0 billion euros more than the 7.0 billion euros mooted in a preliminary agreement reached on March 25 in order to secure an EU-IMF contribution of 10 billion euros.

Under the preliminary terms of a bailout agreed last month, Cyprus will drastically reduce the size of its bloated banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms.

Stylianides was commenting on a new assessment of Cyprus's financing needs that eurozone finance ministers, including that of Cyprus, are to discuss in Dublin from Friday in a bid to reach a final deal.

A source close to the talks said "the financing needs of Cyprus have evolved. Notably, while the restructuring of the financial sector will now be very largely financed through private means, the projected fiscal needs of the state have increased as a result of the deeper-than-expected recession."

A copy of the assessment obtained by AFP says the European Commission and European Central Bank now estimate that "Cyprus's gross financing needs amount to about (23 billion euros) over the three-year program horizon" through the first quarter of 2016.

"This includes needs for the recapitalisation of the banking sector, the redemption of maturing medium- and long-term debt, including loans and fiscal needs."

Under the March deal, failed lender Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.

To cover part of Cyprus's revenue-raising needs, there was talk that customers with deposits of more than 100,000 euros at Bank of Cyprus could lose up to 60 per cent of those holdings. That figure could now be even higher.

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Cyprus 'ready to turn economy around'

THE new finance minister of cash-strapped Cyprus vowed to do "whatever it takes" to sort out the EU country's teetering finances and put the economy back on track for growth.

Haris Georgiades was speaking hours after President Nicos Anastasiades swore him in, warning of "difficult days ahead" for an island struggling to recover from a near financial meltdown and the need for a crippling eurozone bailout.

Mr Anastasiades said this would entail "firstly, collectivity and, secondly, consistency and fiscal discipline and all those measures that will contribute to kick-starting the economy as soon as possible".

The new minister, a 40-year-old British-educated economist, vowed to implement the terms of the bailout "fully... we shall meet all time frames and meet all targets".

"We... shall do whatever it takes to fix our public finances and put our economy back on track for growth."

"Even though today's circumstances might be bleak, the medium- and long-term prospects remain excellent. We have received a blow but I'm absolutely confident we shall overcome," said Mr Georgiades.

Under the terms of the bailout, Cyprus will drastically reduce the size of its bloated banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms.

Cyprus is already in recession, with unemployment at around 15 per cent and expected to grow sharply this year and next.

Forecasts before the deal was agreed saw GDP contracting by 3.5 per cent this year.

Yesterday, outgoing finance minister Michalis Sarris said "2013 will be a very difficult year, and the beginning of 2014 will also be difficult. Beyond this I believe the prospects are positive".

Mr Georgiades, who became labour minister when Mr Anastasiades was elected in February, was appointed after Mr Sarris stepped down yesterday.

Mr Sarris had been chairman last year of failed Laiki Bank, whose collapse was a major contributor to the crisis. He said he was resigning to cooperate with a panel of judges appointed to investigate the causes of the crisis.
His departure came as the government wrapped up talks with the IMF, European Commission and European Central Bank that will open the way for Cyprus to receive a 10 billion euros ($12.36 billion) bailout.

The deal will see Cyprus receiving the loan with an interest rate of between 2.5 and 2.7 per cent, repayable over 12 years after a grace period of 10.

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Cyprus bank workers protest over pension

People queue to use an ATM outside a closed Laiki Bank branch in the capital Nicosia, Cyprus. (AP Photo/Petros Giannakouris) Source: AP

BANK workers in bailed out Cyprus staged a work stoppage overnight over fears that pensions may be at risk, as more details emerged of biting austerity measures imposed on the cash-strapped island.

The brief strike, followed by a protest march on parliament by around 1000 smartly dressed bankers, comes despite reassurances by President Nicos Anastasiades that every effort would be made to preserve pension funds at the two banks in the eye of the financial storm.

Bank employees' union ETYK called the two-hour stoppage over concerns that pension funds at failed Laiki and at the Bank of Cyprus are not being protected under the 10-billion-euro bailout deal with the IMF, European Commission and European Central Bank.

Protesters who marched through Nicosia overnight carried banners reading, "Wake up Cyprus", "Hands off our jobs, hands off our provident funds" and "We are paying for mistakes of bankers".

"Many, many thousands will come to protest against the verbal commitment," said George Georgiou. "We want written commitments for safeguarding of our provident funds and jobs."

Anna Papaioannou, who works for Laiki, was furious about the bailout, saying "what happened to Cyprus is rape. It's rape, it's robbery and murder all together".

The work stoppage had little effect on the public, timed as it was towards the end of usual banking hours.

But some customers were taken by surprise and found the doors locked 45 minutes ahead of the 12.30pm scheduled time.

Iraklis Andreou, a 60-year-old who works in an office near Eleftheria Square in the city centre, had come as he had every day since banks reopened a week ago to cash a 300-euro cheque at a Laiki branch.

He walked off with an air of resignation, saying he would return on Friday.

Nigerian Godsun Sunday, 38, who works in the tourism industry, was unhappy. He had noticed some anomalies in his balance, and wanted some answers.

"This is unbelievable. The whole thing is getting worse. The more complicated it becomes, the more it hurts," he said.

There has been no significant labour unrest in Cyprus so far, but the bailout will force painful reforms, including higher taxes, downsizing the public sector, privatising some state-owned firms and drastically reducing the size of the bloated banking sector.

According to details of the bailout deal that emerged overnight, Cyprus must still adopt 351 million euros in austerity measures in its 2013 budget before receiving the EU financial aid expected in May.

"Over 2013, the authorities will rigorously implement the 2013 budget law with additional permanent measures of at least 351 million euros (2.1 percent of GDP)," says the memorandum of understanding, seen by AFP.

Among steps Cyprus must still take are raising corporate income tax from 10 per cent to 12.5 per cent, hiking taxes on interest income to 30 per cent and raising property taxes.

On the spending side, it will have to end its practice of grants for acquiring first residences and making construction loans, cap the number of pensioners receiving Easter bonuses and reduce state and broader public sector pensions by between 0.8 per cent and two per cent.

The new finance minister, Haris Georgiades, vowed yesterday to implement the bailout terms in full, saying the government would do "whatever it takes to fix our public finances and put our economy back on track for growth".

Cyprus is already in recession, with unemployment of around 15 per cent expected to grow sharply this year and next. Forecasts before the deal was agreed saw GDP contracting by 3.5 per cent this year.

Banks have been operating under stringent capital controls since they reopened after a near two-week lockdown prompted by fears of a run on deposits, but the central bank has been progressively easing the restrictions.

It is still not known how long the controls will be in place.

Overnight, the central bank said the Bank of Cyprus, which has now acquired Laiki, and the rest of lenders in Cyprus are "operating normally within the restrictive measures".

It said that "further relaxations are being considered for implementation soon."

In Frankfurt, meanwhile, the European Central Bank held steady its main refinancing rate at a historic low of 0.75 per cent, despite concerns about the fallout from the Cyprus bailout for the eurozone as a whole.

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Cyprus 'ready to turn economy around'

THE new finance minister of cash-strapped Cyprus vowed to do "whatever it takes" to sort out the EU country's teetering finances and put the economy back on track for growth.

Haris Georgiades was speaking hours after President Nicos Anastasiades swore him in, warning of "difficult days ahead" for an island struggling to recover from a near financial meltdown and the need for a crippling eurozone bailout.

Mr Anastasiades said this would entail "firstly, collectivity and, secondly, consistency and fiscal discipline and all those measures that will contribute to kick-starting the economy as soon as possible".

The new minister, a 40-year-old British-educated economist, vowed to implement the terms of the bailout "fully... we shall meet all time frames and meet all targets".

"We... shall do whatever it takes to fix our public finances and put our economy back on track for growth."

"Even though today's circumstances might be bleak, the medium- and long-term prospects remain excellent. We have received a blow but I'm absolutely confident we shall overcome," said Mr Georgiades.

Under the terms of the bailout, Cyprus will drastically reduce the size of its bloated banking sector, raise taxes, downsize the public sector workforce and privatise some state-owned firms.

Cyprus is already in recession, with unemployment at around 15 per cent and expected to grow sharply this year and next.

Forecasts before the deal was agreed saw GDP contracting by 3.5 per cent this year.

Yesterday, outgoing finance minister Michalis Sarris said "2013 will be a very difficult year, and the beginning of 2014 will also be difficult. Beyond this I believe the prospects are positive".

Mr Georgiades, who became labour minister when Mr Anastasiades was elected in February, was appointed after Mr Sarris stepped down yesterday.

Mr Sarris had been chairman last year of failed Laiki Bank, whose collapse was a major contributor to the crisis. He said he was resigning to cooperate with a panel of judges appointed to investigate the causes of the crisis.
His departure came as the government wrapped up talks with the IMF, European Commission and European Central Bank that will open the way for Cyprus to receive a 10 billion euros ($12.36 billion) bailout.

The deal will see Cyprus receiving the loan with an interest rate of between 2.5 and 2.7 per cent, repayable over 12 years after a grace period of 10.

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Big Cyprus savers to lose up to 60pc

A banking bust in Cyprus sent savers on to the streets in protest last week and sparked fears of another European crisis. Source: AP

A CENTRAL Bank official and a senior Finance Ministry technocrat says that Bank of Cyprus savers with over $100,000 could take losses of up to 60 per cent.

The officials, who spoke on condition of anonymity because they're not authorized to publicly discuss details of the issue, said Saturday that deposits over €100,000 at the country's largest lender will lose 37.5 per cent of their value after being converted into bank shares.

They said they could lose up to 22.5 percent more, depending on an assessment by officials who will determine the exact figure aimed at restoring the troubled bank back to health.

Cyprus agreed Monday to make depositors contribute to a financial rescue in order to secure 10 billion euros ($12.9 billion) in loans from the eurozone and the IMF.

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Cyprus prepares for banks reopening

A man sits in front of empty ATMs outside the National Bank of Cyprus, which has been closed for two weeks. Source: Getty Images

CYPRUS has imposed limits on money transfers and hired extra security guards as it prepares for the planned reopening of its banks.

A banking official said Wednesday that new controls will include restrictions on large-scale transfers from the country's two largest and most troubled lenders, Bank of Cyprus and Laiki, when they reopen later today. Both are being restructured and big depositors face losses of as much as 40 per cent.

Authorities are looking to increase the daily withdrawal limit from 100 euros to 300 euros (from $130 to $386), while payroll payments will be allowed in order to help businesses, which have taken a huge hit as people cut down on their spending amid the uncertainty swirling about the banks.

The restrictions will be kept for at least a week until the situation stabilises, said the official, who spoke only on condition of anonymity because the measures have yet to be officially announced.

Meanwhile, private security firm G4S will dispatch 180 of its staff to all bank branches across the island to keep a lid on any possible trouble, said John Argyrou, managing director of the firm's Cypriot arm.

"Our presence there will be for the comfort of both bank staff and clients, but police will also be present," he said.

Mr Argyrou said he doesn't foresee any serious trouble unfolding once banks open their doors because people had time to "digest" what has transpired.

"There may be some isolated incidents, but it's in our culture to be civil and patient, so I don't expect anything serious."

Another 120 staff from G4S would be assigned money transportation duties.

Banks were closed on March 16 as politicians scrambled to come up with a plan to raise 5.8 billion euros that would qualify the country for 10 billion euros in bailout loans from fellow eurozone partners and the International Monetary Fund.

Under the deal clinched in Brussels early on Monday, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large Laiki and Bank of Cyprus depositors.

Laiki is to be restructured, with its healthy assets going into a "good bank" and its nonperforming loans and toxic assets going into a "bad bank," officials have said. The healthy side will be absorbed into the Bank of Cyprus.

The board of directors of both banks has been fired and administrators appointed to handle the restructuring and absorption, the banking official said.

Bank of Cyprus CEO Yiannis Kypris issued a statement saying the Central Bank governor had asked him verbally on Wednesday to resign.

"These are very difficult times for everyone. The Bank of Cyprus was and must remain the basic support of the economy and our society in the effort to deal with the crisis our country is going through," Mr Kypris said. "I hope that the handling of this transition phase will respect the workers, shareholders and customers of the Bank of Cyprus."

Cypriot officials said the deal would mean the country would shift its focus away from being an international center of financial services. That is expected to cost jobs, adding to the unemployment rate which now stands at around 14 percent.

Business leaders and cabinet ministers were meeting with President Nicos Anastasiades on Wednesday to find ways to get the economy going again.

To give consumers a break, electricity prices will drop 5.75 per cent next month. Over the next couple of weeks, authorities will look into how they can reduce them by another 3 per cent, said Commerce Minister Giorgos Lakkotrypis.

Interior Minister Socrates Hasikos said his ministry is looking to cut red tape in order to attract foreign investment. He said Chinese investors have shown increasing interest in property sales, adding that a single real estate office has sold some 400 residences to Chinese buyers.

"There has always been interest from foreign investors," said Mr Hasikos. "The question is how we as the government, as Cyprus, can convince all these investors ...that the environment is secure, that whatever happened has now passed and that they can continue securely investing in Cyprus."
 

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European stocks nosedive on Cyprus deal

Cyprus has a bail out but the markets are still nervous about the deal.

Employees of Bank of Cyprus gather during a rally outside the headquarters as the bank remained closed. (AP Photo/Thanassis Stavrakis) Source: AP

EUROPEAN stock markets have turned sharply lower after Cyprus agreed to a deal that qualifies the eurozone member for a bailout - but only after a radical downsizing of the island's financial sector.

Bank shares had rallied early after the eurozone struck a deadline-day deal that keeps Cyprus from stumbling out of the single currency at least for now.

But in afternoon trading (local time) shares radically turned direction, brought lower when Eurogroup head Jeroen Dijsselbloem told the Financial Times and Reuters the hard-won agreement to liquidate a major Cypriot lender could become a model for other troubled corners of the eurozone.

"Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach," Mr Dijsselbloem told the paper hours after the deal was reached.

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on ... The consequences may be that it's the end of story ..." he said.

The blunt talk of leaving troubled banks to their fate sent shares into reverse with London's FTSE 100 index of leading companies ending the day down 0.22 per cent to 6378.38 points after having traded higher most of the day.

In Frankfurt, the DAX 30 slid 0.51 per cent to 7870.90 points, while in Paris the CAC 40 nosedived 1.12 per cent to 3727.98 points.

Debt crisis flashpoint Madrid also turned to the red, down 2.50 per cent, and Milan slid 2.27 per cent.

"Contrary to what was said last week, Cyprus is no longer a special case which is causing anxiety. We've created a precedent (with the bailout deal)," said Andrea Tueni of Saxo Bank in Paris.

The euro, after also rising early on, dipped to $US1.2854 from $US1.2986 in New York on Saturday.

Gold prices fell to $US1599.25 an ounce from $US1607.75 on Saturday on the London Bullion Market.

German Finance Minister Wolfgang Schaeuble said the bailout deal sealed yesterday between eurozone nations and Cyprus is a fair one that will restore shaken faith in the debt-laden country and stabilise its economy.

"The result is a fair one for everybody involved," Mr Schaeuble said.

It will "help win back lost confidence" and shore up Cyprus's finances, he said.

Cyprus President Nicos Anastasiades battled for 12 hours overnight with his eurozone partners and the IMF to secure the deal.

In the end, however, he let one banking chain go to the wall and left major investors in the island's biggest bank - many of whom are Russian - take a giant hit.

Under the terms of the agreement, the island's second largest lender, Laiki (Popular Bank), will be wound up, an operation Mr Dijsselbloem said would deliver a 4.2-billion-euro ($5.25 billion) saving.

As the impact of the deal sank in and Mr Dijsselbloem comments hit the wires, European banks went deep into negative territory, with BNP Paribas ending the session down 3.04 per cent to 39.93 euros, Credit Agricole down 5.8 per cent to 6.18 euros and Deutsche Bank down 1.61 per cent to 31.88 euros.

US stocks also fell in midday trade, with the Dow Jones Industrial Average 0.73 per cent lower, the broad-based S&P 500 down 0.48 per cent and the tech-rich Nasdaq Composite Index slumping 0.72 per cent.

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Cyprus leader defends bailout

A Cypriot woman protests against an EU bailout deal outside the parliament in Nicosia this week. Source: The Australian

PRESIDENT Nicos Anastasiades says a bailout he secured from international creditors had saved Cyprus from collapse but world markets took fright because it might become a model for other larger economies.

The agreement he struck averts a chaotic eurozone exit for the island and allows a partial reopening of bank branches from today after a 10-day shutdown imposed to avoid a run on accounts while the talks dragged on.

But it comes at the expense of job losses in the key financial sector and a massive drying up of credit that threatens a protracted recession.

After a brief rally, world stock markets and the euro nosedived as the severity of the model that had been set for future bailouts of other larger indebted eurozone economies became clear.

The agreement struck with the European Union and the International Monetary Fund deals a major hit to investors and depositors in the island's biggest bank, the Bank of Cyprus, many of whom are Russian, and will also effectively shut down Laiki, its second-largest lender.

Laiki is to be wound up, with what is saved being merged with Bank of Cyprus whose larger depositors will face a "haircut" of 30 per cent, government spokesman Christos Stylianides said.

The European Central Bank announced that in light of the deal it would continue its emergency funding of the two banks which it had threatened to cut off from yesterday. Their merger is likely to lead to major job losses in a sector that had been one of the few growth areas in the island's economy and a drying up of credit to consumers and small businesses.

But wealthy eurozone governments like France and Germany had refused to bail out Cyprus unless it agreed to put an end to what they regarded as a "casino" financial sector dependent on hot money from countries like Russia.

Mr Anastasiades said overnight there had been "no easy solutions" in the marathon talks with international creditors that climaxed in the early hours and expressed confidence that Cyprus would "find its feet again".

He promised the banking system would stabilise and that the merger of what was left of the two main lenders would ensure a "strong and capable bank is created to serve the needs of depositors and the national economy".

"The agreement reached is a painful one but under the circumstances the best we could secure ... Cyprus was a breath away from economic collapse," the conservative president said.

The deal spares all depositors with less than 100,000 Euros ($124,899) in the island's banks, a key condition missing from a previous agreement the Cypriot parliament rejected last week.

But Cyprus could now be in for a "deep recession caused by the shrinkage of the banking sector and severe deleveraging", or paying down of debt, UBS economist Reinhard Cluse said.

Economists have forecast the Cyprus economy could now contract by at least 10 per cent this year and by 8.0 per cent in 2014. Banks on the island will reopen today except for the two big lenders, which will keep their doors closed until Thursday.

"Some restrictive measures on financial transactions" will remain in force, Mr Anastasiades said, stressing that it was a "very temporary measure".

In the face of public outrage over the devastation of the island's prized banking sector, together with huge losses in savings and jobs, he vowed to open a criminal investigation into the crisis.

"I undertake in the next few days for the cabinet to appoint criminal investigators with a clear term of reference to find and attribute responsibility wherever it belongs," Mr Anastasiades said.

The conservative president said he shared the "bitterness and disappointment" felt by many on the island at the attitude of  "some of our respected partners" in the eurozone but insisted that quitting the single currency was not the answer.

German Chancellor Angela Merkel, whose government took a hard line in the talks, said the deal represented a "fair distribution" of the burden and "also requires those who have contributed to causing these undesirable developments to take responsibility".

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European stocks nosedive on Cyprus deal

Cyprus has a bail out but the markets are still nervous about the deal.

Employees of Bank of Cyprus gather during a rally outside the headquarters as the bank remained closed. (AP Photo/Thanassis Stavrakis) Source: AP

EUROPEAN stock markets have turned sharply lower after Cyprus agreed to a deal that qualifies the eurozone member for a bailout - but only after a radical downsizing of the island's financial sector.

Bank shares had rallied early after the eurozone struck a deadline-day deal that keeps Cyprus from stumbling out of the single currency at least for now.

But in afternoon trading (local time) shares radically turned direction, brought lower when Eurogroup head Jeroen Dijsselbloem told the Financial Times and Reuters the hard-won agreement to liquidate a major Cypriot lender could become a model for other troubled corners of the eurozone.

"Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach," Mr Dijsselbloem told the paper hours after the deal was reached.

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on ... The consequences may be that it's the end of story ..." he said.

The blunt talk of leaving troubled banks to their fate sent shares into reverse with London's FTSE 100 index of leading companies ending the day down 0.22 per cent to 6378.38 points after having traded higher most of the day.

In Frankfurt, the DAX 30 slid 0.51 per cent to 7870.90 points, while in Paris the CAC 40 nosedived 1.12 per cent to 3727.98 points.

Debt crisis flashpoint Madrid also turned to the red, down 2.50 per cent, and Milan slid 2.27 per cent.

"Contrary to what was said last week, Cyprus is no longer a special case which is causing anxiety. We've created a precedent (with the bailout deal)," said Andrea Tueni of Saxo Bank in Paris.

The euro, after also rising early on, dipped to $US1.2854 from $US1.2986 in New York on Saturday.

Gold prices fell to $US1599.25 an ounce from $US1607.75 on Saturday on the London Bullion Market.

German Finance Minister Wolfgang Schaeuble said the bailout deal sealed yesterday between eurozone nations and Cyprus is a fair one that will restore shaken faith in the debt-laden country and stabilise its economy.

"The result is a fair one for everybody involved," Mr Schaeuble said.

It will "help win back lost confidence" and shore up Cyprus's finances, he said.

Cyprus President Nicos Anastasiades battled for 12 hours overnight with his eurozone partners and the IMF to secure the deal.

In the end, however, he let one banking chain go to the wall and left major investors in the island's biggest bank - many of whom are Russian - take a giant hit.

Under the terms of the agreement, the island's second largest lender, Laiki (Popular Bank), will be wound up, an operation Mr Dijsselbloem said would deliver a 4.2-billion-euro ($5.25 billion) saving.

As the impact of the deal sank in and Mr Dijsselbloem comments hit the wires, European banks went deep into negative territory, with BNP Paribas ending the session down 3.04 per cent to 39.93 euros, Credit Agricole down 5.8 per cent to 6.18 euros and Deutsche Bank down 1.61 per cent to 31.88 euros.

US stocks also fell in midday trade, with the Dow Jones Industrial Average 0.73 per cent lower, the broad-based S&P 500 down 0.48 per cent and the tech-rich Nasdaq Composite Index slumping 0.72 per cent.

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Cyprus leader defends bailout

A Cypriot woman protests against an EU bailout deal outside the parliament in Nicosia this week. Source: The Australian

PRESIDENT Nicos Anastasiades says a bailout he secured from international creditors had saved Cyprus from collapse but world markets took fright because it might become a model for other larger economies.

The agreement he struck averts a chaotic eurozone exit for the island and allows a partial reopening of bank branches from today after a 10-day shutdown imposed to avoid a run on accounts while the talks dragged on.

But it comes at the expense of job losses in the key financial sector and a massive drying up of credit that threatens a protracted recession.

After a brief rally, world stock markets and the euro nosedived as the severity of the model that had been set for future bailouts of other larger indebted eurozone economies became clear.

The agreement struck with the European Union and the International Monetary Fund deals a major hit to investors and depositors in the island's biggest bank, the Bank of Cyprus, many of whom are Russian, and will also effectively shut down Laiki, its second-largest lender.

Laiki is to be wound up, with what is saved being merged with Bank of Cyprus whose larger depositors will face a "haircut" of 30 per cent, government spokesman Christos Stylianides said.

The European Central Bank announced that in light of the deal it would continue its emergency funding of the two banks which it had threatened to cut off from yesterday. Their merger is likely to lead to major job losses in a sector that had been one of the few growth areas in the island's economy and a drying up of credit to consumers and small businesses.

But wealthy eurozone governments like France and Germany had refused to bail out Cyprus unless it agreed to put an end to what they regarded as a "casino" financial sector dependent on hot money from countries like Russia.

Mr Anastasiades said overnight there had been "no easy solutions" in the marathon talks with international creditors that climaxed in the early hours and expressed confidence that Cyprus would "find its feet again".

He promised the banking system would stabilise and that the merger of what was left of the two main lenders would ensure a "strong and capable bank is created to serve the needs of depositors and the national economy".

"The agreement reached is a painful one but under the circumstances the best we could secure ... Cyprus was a breath away from economic collapse," the conservative president said.

The deal spares all depositors with less than 100,000 Euros ($124,899) in the island's banks, a key condition missing from a previous agreement the Cypriot parliament rejected last week.

But Cyprus could now be in for a "deep recession caused by the shrinkage of the banking sector and severe deleveraging", or paying down of debt, UBS economist Reinhard Cluse said.

Economists have forecast the Cyprus economy could now contract by at least 10 per cent this year and by 8.0 per cent in 2014. Banks on the island will reopen today except for the two big lenders, which will keep their doors closed until Thursday.

"Some restrictive measures on financial transactions" will remain in force, Mr Anastasiades said, stressing that it was a "very temporary measure".

In the face of public outrage over the devastation of the island's prized banking sector, together with huge losses in savings and jobs, he vowed to open a criminal investigation into the crisis.

"I undertake in the next few days for the cabinet to appoint criminal investigators with a clear term of reference to find and attribute responsibility wherever it belongs," Mr Anastasiades said.

The conservative president said he shared the "bitterness and disappointment" felt by many on the island at the attitude of  "some of our respected partners" in the eurozone but insisted that quitting the single currency was not the answer.

German Chancellor Angela Merkel, whose government took a hard line in the talks, said the deal represented a "fair distribution" of the burden and "also requires those who have contributed to causing these undesirable developments to take responsibility".

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The deal that may save Cyprus

Cyprus President Nicos Anastasiades entered emergency talks with creditors seeking to avert bankruptcy.

FIERCE negotiations to resurrect a deal for the EU and the IMF to bail out Cyprus appear to have wrapped up early, President Nicos Anastasiades has indicated on Twitter.

"Efforts have culminated", read a translation from the Greek, with EU sources subsequently stating that a preliminary agreement is in place to hit Bank of Cyprus depositors with a massive 40 per cent "haircut" on deposits of more than 100,000 euros pending endorsement by Eurogroup finance ministers.

Waiting Eurogroup finance ministers were set to go over the new plan with a view to approval.

During more than 10 hours of talks with bosses from the ECB, IMF and the EU, Anastasiades had fought for the survival of the island's No. 1 lender, the Bank of Cyprus.

The deal hammered out would see the bank, which carries one third of all holdings, survive.

But this would come at a massive price for investors, which one senior EU source said could be as high as 40 per cent.

With Cyprus' banks on the verge of collapse, residents in the capital are pessimistic over the future of their economy. Jessica Gray reports.

Another senior EU source said there would be no levy -- a major U-turn from last week's collapsed deal to clobber all savers on the island.

But Cyprus's second bank, Laiki, would be wound up as part of the agreement, he added.

Smaller account-holders will be covered by the EU's deposit guarantee legislation, which runs to the 100,000-euro threshold, while those above that level face a hefty haircut.

The negotiations were aimed at pulling together some seven billion euros, mainly from the Cypriot banking sector, to unlock a 10-billion-euro ($A12.51 billion) loans package from eurozone partners and the International Monetary Fund.

A major sticking point throughout the talks was a European Central Bank demand for the Bank of Cyprus to pay a nine-billion-euro bill due to Frankfurt.

Cypriot president Nicos Anastasiades warned he may be forced to quit as he battles Brussels bailout bosses.

Earlier, hundreds of Cypriot demonstrators have rallied outside EU offices and the presidential palace in Nicosia, calling on the government to defy international pressure to take a "criminal" bailout.

As they awaited the result of last-ditch talks in Brussels, the protesters slammed President Nicos Anastasiades and the so-called troika of the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB).

About 500 members of the communist Akel Party gathered outside the offices of the European Commission chanting: "Don't bow, people of Cyprus, stand up for your rights," and "Troika prints euros and buys nations".

"This is the Third World War in an economic form and we will stand up to it with all of our strength," protester Marina Charalambous said.

Another protester, Anda Dimitriou, said: "Cypriots are proud people, very hardworking people. Europe's stance is unacceptable and criminal."

A banking bust in Cyprus sent savers on to the streets in protest last week and sparked fears of another European crisis.

Athina Kariati, said Cyprus had to fight efforts to make it accept conditions including a "haircut" for bank depositors.

"They are going to let people starve in order to save the large capital," she said. "Right now we have to save our economy completely, refuse to pay the debt and nationalise the banks," she said.

Party member Andreas, a pensioner who declined to give his surname, said the troika were "not considering the people of Cyprus, but only figures and money".

"Their main concern is about Cypriot banks and that goes against the basic principle of the EU, guarding people's wellbeing," he said.

Akel, which has 19 seats in the 56-member parliament, had refused to sign a bailout agreement on the terms on offer while it was in power before Anastasiades's election last month.

"Anastasiades is responsible for this," said Charles Vassiliou, another Akel member.

"He listens to the troika. Akel would have handled the situation very differently. We would never have put Cyprus hostage to the troika. We would have quit the eurozone and gone back to the (Cyprus) pound."

Some demonstrators were gloomily fatalistic about Cyprus eventually being forced to abandon the European single currency that it adopted in 2008.

"We are bankrupt," said Starvros Georgiou.

"Sooner or later we will return to the pound with tremendous consequences."

The other protest at the presidential palace involved around 200 people, mostly bank workers whose jobs and pensions are on the line.

They held a banner saying: "We will not become slaves of the 21st century."

A female protester who declined to give her name compared the crisis to 1974, the year that Turkish troops occupied the island's northern third in response to an Athens-engineered coup in Nicosia aimed at union with Greece.

"Everything is pre-planned because the government wants to follow the troika. Everything is sold and betrayed as back in 1974," she said angrily.

"How can there be a light at the end of the tunnel when a government doesn't know how to negotiate, only because they want to follow troika. Anastasiades is committed to (German Chancellor Angela) Merkel."

Negotiations in Brussels among Eurogroup finance ministers on Cyprus were put back by at least two hours on Sunday as talks dragged on between Anastasiades and EU and IMF chiefs.

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Teetering Cyprus 'has four days'

People queue to use an ATM outside a closed Laiki Bank branch in Nicosia, Cyprus. The European Central Bank says it will keep emergency aid for Cyprus' troubled banks in place at least until Monday but will have to cut it off after that unless an international rescue program is drawn up. Picture: AP Photo/Petros Giannakouris Source: AP

CYPRUS has four days to agree on a new plan to raise funds to avoid bankruptcy, with the European Central Bank warning it will pull the plug on the country's banks at the start of next week if no solution is found.

Facing the ultimatum, the Cypriot government was racing to cement a new package that will please both Parliament and the country's potential international creditors.

Party leaders met with the president to consider a range of measures that could raise the 5.8 billion euros ($7.2 billion) needed to qualify for 10 billion euros in rescue loans from the eurozone partners and the International Monetary Fund.

One measure agreed on Thursday was the creation of an "Investment Solidarity Fund" that would appeal for donations from ordinary Cypriots, businessmen and foreign investors, said Demetris Syllouris, head of a small right-wing party who was in the meeting with the president.

The legal and technical details were still being worked out, and the bill would be reviewed by the Cabinet overnight, government spokesman Christos Stylianides said.

A "Plan B" was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 per cent of all domestic deposits to raise the 5.8 billion euros.

The rest of the "Plan B" will include restructuring Cyprus' troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus' wealthy Orthodox church to contribute. Some form of tax on bank deposits is also possible.

Employees of Bank of Cyprus gather during a rally outside the headquarters as the bank remained closed in Athens. Picture: AP Photo/Thanassis Stavrakis

"We will have a program of support for Cyprus by Monday," central bank governor Panicos Demetriades said as he left a meeting with the country's president and political party leaders.

However, it seemed unlikely a deal would be reached in time for a vote during Parliament's regular Thursday session.

"Today, no, I don't think so," said Averof Neophytou, deputy head of the governing DISY party, when asked if a deal could be reached and voted on by the evening.

Russia is likely to pitch in, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the 68 billion euros in deposits in Cyprus' oversized banking sector are held by Russians.

Cyprus' finance minister, Michalis Sarris, has been in Moscow since Tuesday seeking to forge a deal.

Russia's help would not be a loan, but rather some form of an investment, Mr Sarris told Cypriot state broadcaster CyBC. He is due to meet with his Russian counterpart, Anton Siluanov, and the Russian energy minister later in the day.

Cyprus Central Bank chief Panicos Demetriades leaves after the meeting outside the presidential palace in Nicosia. Picture: AP

Russia news agency ITAR-Tass quoted him as saying that "we are discussing the subjects of gas, bank cooperation and other subjects." Cyprus has recently discovered significant off-shore gas deposits, and major energy companies have shown an interest in tapping those resources.

With indications that the new plan will include restructuring Cyprus' troubled second-largest lender Laiki Bank, angry lines of people formed at some of the bank's ATMs in the center of the capital.

Banks have been shut since last Friday, and are to remain so until next Tuesday to prevent a run. Although ATMs have been functioning, many often run out of cash.

Cyprus' troubled banks have enough money until Monday after the European Central Bank said it will switch off its lifeline on Monday unless an international rescue is in place. The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank.

In Brussels, the head of the 17-nation eurozone's finance ministers Jeroen Dijsselbloem, said the ECB was doing "as much as they can within their mandate."

He also told lawmakers at the European Parliament that a one-time tax on bank deposits was "inevitable" given Cyprus' oversize financial sector, though said the burden should be shifted toward taxing big bank deposits of about more than 100,000 euros.

An amended bill that would have exempted deposits of under 20,000 euros in the bank was rejected by lawmakers Tuesday.

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Teetering Cyprus 'has four days'

People queue to use an ATM outside a closed Laiki Bank branch in Nicosia, Cyprus. The European Central Bank says it will keep emergency aid for Cyprus' troubled banks in place at least until Monday but will have to cut it off after that unless an international rescue program is drawn up. Picture: AP Photo/Petros Giannakouris Source: AP

CYPRUS has four days to agree on a new plan to raise funds to avoid bankruptcy, with the European Central Bank warning it will pull the plug on the country's banks at the start of next week if no solution is found.

Facing the ultimatum, the Cypriot government was racing to cement a new package that will please both Parliament and the country's potential international creditors.

Party leaders met with the president to consider a range of measures that could raise the 5.8 billion euros ($7.2 billion) needed to qualify for 10 billion euros in rescue loans from the eurozone partners and the International Monetary Fund.

One measure agreed on Thursday was the creation of an "Investment Solidarity Fund" that would appeal for donations from ordinary Cypriots, businessmen and foreign investors, said Demetris Syllouris, head of a small right-wing party who was in the meeting with the president.

The legal and technical details were still being worked out, and the bill would be reviewed by the Cabinet overnight, government spokesman Christos Stylianides said.

A "Plan B" was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 per cent of all domestic deposits to raise the 5.8 billion euros.

The rest of the "Plan B" will include restructuring Cyprus' troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus' wealthy Orthodox church to contribute. Some form of tax on bank deposits is also possible.

Employees of Bank of Cyprus gather during a rally outside the headquarters as the bank remained closed in Athens. Picture: AP Photo/Thanassis Stavrakis

"We will have a program of support for Cyprus by Monday," central bank governor Panicos Demetriades said as he left a meeting with the country's president and political party leaders.

However, it seemed unlikely a deal would be reached in time for a vote during Parliament's regular Thursday session.

"Today, no, I don't think so," said Averof Neophytou, deputy head of the governing DISY party, when asked if a deal could be reached and voted on by the evening.

Russia is likely to pitch in, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the 68 billion euros in deposits in Cyprus' oversized banking sector are held by Russians.

Cyprus' finance minister, Michalis Sarris, has been in Moscow since Tuesday seeking to forge a deal.

Russia's help would not be a loan, but rather some form of an investment, Mr Sarris told Cypriot state broadcaster CyBC. He is due to meet with his Russian counterpart, Anton Siluanov, and the Russian energy minister later in the day.

Cyprus Central Bank chief Panicos Demetriades leaves after the meeting outside the presidential palace in Nicosia. Picture: AP

Russia news agency ITAR-Tass quoted him as saying that "we are discussing the subjects of gas, bank cooperation and other subjects." Cyprus has recently discovered significant off-shore gas deposits, and major energy companies have shown an interest in tapping those resources.

With indications that the new plan will include restructuring Cyprus' troubled second-largest lender Laiki Bank, angry lines of people formed at some of the bank's ATMs in the center of the capital.

Banks have been shut since last Friday, and are to remain so until next Tuesday to prevent a run. Although ATMs have been functioning, many often run out of cash.

Cyprus' troubled banks have enough money until Monday after the European Central Bank said it will switch off its lifeline on Monday unless an international rescue is in place. The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank.

In Brussels, the head of the 17-nation eurozone's finance ministers Jeroen Dijsselbloem, said the ECB was doing "as much as they can within their mandate."

He also told lawmakers at the European Parliament that a one-time tax on bank deposits was "inevitable" given Cyprus' oversize financial sector, though said the burden should be shifted toward taxing big bank deposits of about more than 100,000 euros.

An amended bill that would have exempted deposits of under 20,000 euros in the bank was rejected by lawmakers Tuesday.

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Ease in Cyprus fears lifts dollar slightly

THE Australian dollar is slightly higher after US shares rose amid optimism of a solution to the Cyprus financial crisis.

At 6.30am AEDT today, the local unit was trading at 103.83 US cents, up from 103.79 cents yesterday.

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Ease in Cyprus fears lifts dollar slightly

THE Australian dollar is slightly higher after US shares rose amid optimism of a solution to the Cyprus financial crisis.

At 6.30am AEDT today, the local unit was trading at 103.83 US cents, up from 103.79 cents yesterday.

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Crisis in Cyprus drives dollar lower

FINANCIAL woes in Cyprus are pushing the Australian dollar lower but not as much as eurozone debt shocks have in the past.

At 12pm AEDT today, the local unit was trading at 103.67 US cents, down from 103.80 cents yesterday.

The Cypriot government proposed a levy of at least 6.75 per cent tax on all bank deposits as part of a deal to get a 10 billion euro ($12.55 billion) aid package, but no MPs voted for it. The government will now seek other ways of making up the shortfall, including trying to secure more Russian investments.

The Australian dollar dropped at low as 103.51 US cents after the parliamentary vote, early this morning (AEDT), but has since regained some ground.

The major currency worst hit was the euro, which dropped to a four-month low against the greenback of 128.44 US cents.

Easy Forex currency dealer Tony Darvall said the Australian dollar had not fallen as much as it did on similar euro zone debt crisis shocks last year. The currency has fallen only slightly against the yen and has risen to a three-month high of 80.66 euro cents.

"The profile of the Australian currency has changed over the last 12 months," Mr Darvall said. "After the yen, Swiss Franc and US dollar, traders look at the Aussie dollar as being pretty safe, the Aussie economy as being pretty safe. "We're almost on the side of being a safe-haven currency."

Mr Darvall said he expected the Cyprus situation to continue to dominate market moves over the next few days. Traders will also focus on comments by the US Federal Reserve on the American economy after it finishes its policy meeting tonight, Australian time.

Meanwhile, the Australian bond market was firmer at noon. At 12pm AEDT today, the June 10-year bond futures contract was trading at 96.500 (implying a yield of 3.500 per cent), up from 96.430 (3.570 per cent) yesterday. The June three-year bond futures contract was at 97.060 (2.940 per cent), up from 96.970 (3.030 per cent).

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US stocks hold up despite Cyprus crisis

US stocks closed mixed today, holding on as the Cyprus financial crisis threatened to ignite more turmoil across the European financial system.

Stocks actually rebounded from early losses after the Cyprus parliament rejected the controversial bank deposit tax that is key to the country's financial rescue, putting the entire EU-IMF bailout plan into question.

At the close the Dow Jones Industrial Average was up 3.76 points (0.03 per cent) at 14,455.82.

The broad-based S&P 500 fell 3.76 (0.24 per cent) to 1548.34, while the tech-rich Nasdaq Composite Index lost 8.49 points (0.26 per cent) at 3229.10.

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US stocks fall on Cyprus bailout worries

US stocks have fallen for a second straight day as the Cyprus banking crisis sent jitters through markets.

The huge tax on bank depositors included in the weekend EU-IMF bailout plan for Cyprus sent stocks sinking from the opening bell as outrage spread across the Mediterranean island country and spurred fears of similar penalties elsewhere in the eurozone.

The Dow Jones Industrial Average finished down 62.05 points (0.43 per cent) at 14,452.06 today.

The broad-based S&P 500 dropped 8.60 (0.55 per cent) to 1552.10, while the tech-rich Nasdaq Composite lost 11.48 (0.35 per cent) to 3237.59.

The Cyprus controversy hit a market already on edge for a correction after the strong record-bursting run-up since the beginning of March, and also cautious ahead of the two-day Federal Reserve policy board meeting that begins tomorrow.

"It scares investors in Cyprus, it scares investors in Europe and Asia, and in the US," said Hugh Johnson of Hugh Johnson Advisors.

"We learned from past financial crises, for instance the Southeast Asia financial crisis that started in a small country like Thailand back in the '90s, that a crisis starting in a small country like Cyprus can spread all over."

Apple added another 2.7 per cent amid continuing speculation that it could release some of its massive financial war chest back to investors in the form of a dividend or share buyback.

Constellation Brands gained 3.0 per cent amid signs from the Justice Department that a deal could be nigh to approve the proposed Anheuser-Busch Inbev-Grupo Modelo merger, blocked for the moment by a federal antitrust suit.

Constellation stands to benefit by picking up distribution units from Modelo in the deal.

AB Inbev was up 0.2 per cent.

The Netherlands's NXP Semiconductor fell 4.8 per cent amid reports it had lost a contract to supply chips for the new Galaxy S4 smartphone.

Cable operator Charter Communications shot up 8.7 per cent following reports that Liberty Media would buy a stake in the company.

Bond prices rose. The yield on the 10-year Treasury fell to 1.96 per cent from 2.00 per cent on Saturday, while the 30-year yield fell to 3.18 per cent from 3.23 per cent on Saturday. Bond prices and yields move inversely.

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Cyprus bank levy 'least painful' option

An elderly man holds his bank passbook as he looks through the windows of a closed cooperative bank shop in Limassol, Cyprus, Saturday, March 16, 2013. Many rushed to cooperative banks which are open Saturdays in Cyprus, after learning that the terms of a bailout deal that the cash-strapped country hammered out with international lenders, includes a one-time levy on bank deposits. The move, decided in an extraordinary meeting of the finance ministers of the 17-nation eurozone in the early hours Saturday, is a major departure from established policies. (AP Photo/Pavlos Vrionides) Source: AP

PRESIDENT Nicos Anastasiades said Sunday that a controversial bank levy on private depositors in Cyprus banks as part of an EU bailout deal was the "least painful" option for the recession-hit island.

Anastasiades in a televised address to the shell-shocked nation also vowed to continue to try to persuade the eurogroup which imposed the harsh conditions to "limit the impact on small depositors".

"I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots," Anastasiades said.

As a condition for a desperately-needed 10-billion-euro ($13 billion) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.

Deposits of more than 100,000 euros will be hit with a 9.9 percent charge, while under that threshold the levy drops to 6.75 percent.

Cyprus bank customers have voiced dismay and anger that they alone of the five eurozone member countries forced to seek bailouts so far were being expected to help foot the bill.

"Many countries have economic problems more than Cyprus. Why are they doing this only in Cyprus?" lamented dentist Andreas Hadgigeorghiou.

There was also anger that the president had signed up to the levy after months of assurances that it was a red line he would never cross.

"I feel betrayed," a public sector employee who gave her name only as Elpida told AFP.

Anastasiades sought to calm small-time depositors, who were seen lining up outside ATMs making whatever limited withdrawals of their savings they were allowed amid reports all Internet banking transactions had been frozen.

"I fully share the unhappiness caused by a difficult and painful decision. That's why I continue to fight with the eurogroup to amend their decisions in the coming hours to limit the impact on small depositors," the president said in a televised address to the nation.

Anastasiades, in a blunt assessment, said that rejecting the EU demands would have seen Cyprus exit the eurozone and bankruptcy.

"The first choice would have led to a disorderly default as a result of the ECB (European Central Bank) cutting emergency funding to maintain liquidity in the two largest banks," he said.

"The second choice was very difficult but controlling and managing the situation leading to economic stability of the economy."

Anastasiades urged all political parties to ratify the terms of the EU deal when parliament meets on Monday.

Local media said he is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.

Anastasiades needs to get the legislation ratifying the deal through parliament before banks reopen Tuesday after a long three-day weekend or face a run on accounts.

But Cyprus media reported that the scale of revolt against the agreement among MPs has thrown into disarray his efforts to do so over the weekend, and he may have to declare an additional bank holiday on Tuesday.

He was to meet his cabinet at 9.30 am (0730 GMT) Monday before briefing lawmakers later in the morning. Parliament was to begin debate on the bailout around 4.00 pm (1400 GMT).

The tax will hit everyone with money in Cyprus banks from pensioners to Russian oligarchs, and even the president of the European parliament Martin Schulz expressed concern about the hit being imposed on small depositors.

"The solution must be socially acceptable," Schulz warned.

Experts estimate that Russian deposits in Cypriot banks amount to at least $20 billion, leading to allegation that the island had become a haven for money launderers -- accusations Nicosia vehemently denies.

"Confidence in Cyprus as a safe place to deposit money is going to be reduced to zero," Anatoly Aksakov of the Russian association of regional banks told Interfax news agency.

"Russians have lost up to 3.5 billion euros in one day," an editorial on the website of the Russian edition of Forbes magazine read. "The news of a 10 per cent tax on deposits in Cypriot banks has sown panic among the richest Russian businessmen."

Despite the public statements of opposition, many Cypriots said they expected MPs would eventually be forced to approve the deal.

"I am not happy, but they have to sign," said Irini Makrides, who owns a shoe shop chain.

Nicosia-based political analyst Hubert Faustmann said ultimately MPs had little choice.

"Parliament will have to vote it through because the alternative is bankruptcy. They cannot amend it, as far as I know, it is a 'yes' or 'no' vote -- and a 'no' means bankruptcy."

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Cyprus bailout plan rattles markets

Many rushed to cooperative banks on the weekend in Cyprus, after learning that the terms of a bailout deal includes a one-time levy on bank deposits. Picture: Pavlos Vrionides Source: AP

GLOBAL stocks and the euro fell sharply Monday as investors fretted over a plan to tax depositors in Cypriot banks as part of a bailout plan.

Financial stocks bore the brunt of the selling in European stock markets, with France's Societe Generale down 5 per cent and Italy's UniCredit 4 per cent lower, as investors worried about the implications of the Cyprus bailout.

Since the European debt crisis began in late 2009, savers have been spared. But the bailout of Cyprus, agreed to on Saturday, foresees the government seizing 6.75 per cent of deposits below 100,000 euros ($125,000), rising up to 9.9 per cent on those above 100,000 euros. That signals a huge policy shift for the embattled eurozone.

Now investors are worried that savers will start taking their money out of banks across Europe - just like Cyprus residents did on a weekend ATM bank run.

"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said Michael Hewson, senior market analyst at CMC Markets.

In Europe, the FTSE 100 index of top British shares fell 0.5 per cent to 6461 while Germany's DAX was 0.9 per cent lower at 3816. The CAC-40 in France dropped 0.7 per cent to 3817. Cyprus' main index was closed for a public holiday and the country shut down the banks until Thursday so Parliament can vote on the bailout.

The euro was also suffering, down 0.7 per cent at US$1.2925 ($1.24188).

The Cypriot Parliament has to back the proposal for it to pass, and lawmakers have called it an unfair blow to small savers, since up until now deposits around the eurozone have been guaranteed up to the 100,000 euro level. The vote was postponed for a second time with the Parliament speaker saying it will now take place Tuesday.

One new proposal would make the tax more graduated: placing a one-time 3 per cent levy on deposits below 100,000 euros, rising to 15 per cent for those above 500,000 eruos.

"The bottom line is that it's very finely balanced and the success of the vote will depend on what tax breakdown goes before Parliament," said Adam Cole, an analyst at RBC Capital Markets.

If it backs the levy, then Cyprus would be eligible for a 10 billion euro ($12.5 billion) financial rescue from its partners in the eurozone and the International Monetary Fund. If it doesn't back the deal, then the country of just a million people faces bankruptcy and potentially an exit from the euro - a development that could have huge ramifications in global financial markets.

German finance minister Wolfgang Schaeuble said a "no" vote by Cypriot lawmakers would devastate the country.

"Then the Cypriot banks will no longer be solvent, and Cyprus will be in a very difficult situation," said Schaeuble.

Cyprus' banking sector is about eight times the size of the economy and has been accused of being a hub for money-laundering, particularly from Russia. That's why many European officials wanted to have the banks' depositors involved in the cost of the bailout.

The uncertainty over Cyprus weighed on sentiment around the world, though the selling pressure was eased through the US trading session.

In the US, the Dow Jones industrial average was 0.2 per cent lower at 14,477 while the broader S&P 500 index fell 0.5 per cent to 1553.

Earlier in Asia, Japan's Nikkei 225 index slid 2.7 per cent to 12,220.63, while Hong Kong's Hang Seng dropped 2 per cent to 22,082.83.

Oil prices trimmed their earlier losses, with the benchmark New York rate 25 cents lower at US$93.20 ($89.57) a barrel.

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