(Edits, updates currency)
By Krisztina Than and Gergely Szakacs
BUDAPEST, Oct 16 (Reuters) - Hungary's central bank took help from the European Central Bank and acted to bolster its banking sector on Thursday to stave off the effects of the financial crisis and avoid becoming the next Iceland.
The European Union newcomer's prime minister also appeared to suggest that Hungary could join the ERM-2 euro zone waiting room before 2010 elections, a move that some analysts say could protect the country from market turbulence.
Investors have dumped Hungarian assets over fears its reliance on external financing and the high level of loans granted in foreign currency could spark a meltdown if foreign investors turn off the flow of euros, Swiss francs and dollars.
The government and central bank have scrambled to reassure investors and jump-start frozen markets in government bond and foreign currency swaps -- somewhat obscure instruments that are crucial to Hungary's financial health. After a government request this week for potential aid from the International Monetary Fund (IMF), Hungary's central bank (MNB) on Thursday signed a 5 billion euro deal with the ECB allowing it to borrow if necessary to keep euros flowing.
The MNB also announced later on Thursday a key deal with primary bond dealers to kickstart bond markets.
Asked in an interview with the Financial Times whether Hungary could join the ERM-2 currency grid by 2010, Prime Minister Ferenc Gyurcsany said: "If all the relevant and not just the nominal conditions ... are favourable, yes we should."
He gave no further details but has proposed that political and economic leaders hold a "national summit" on Oct. 18 with a view to adopting a plan to enter the euro zone and to discuss other strategic economic issues. Continued...
The International Monetary Fund (IMF) is preparing a series of loans to both Hungary and Ukraine as financial problems are hitting the two countries. Hungary has already received a 5 billion credit line from the  (ECB). Ukraine is seeking a loan of up to 14 billion. 

Dominique Strauss-Kahn says the IMF is prepared to give loans to Hungary and Ukraine if needed.

The credit line to Hungary will be used to cover banks’ shortage of euros. Hungary has a severe debt problem with them posting an account deficit of €5.3 billion or 4.9% of GDP this year. As a result of this, Hungary is unable to find suitable credit to store up its supply of euros. 

"We are in close dialogue with the Hungarian authorities and the EU to discuss further responses to the current challenges, including possible technical and financial support by the IMF", said Dominique Strauss-Kahn, Managing Director of the IMF. "I have informed the authorities that the IMF stands ready to assist their efforts. We will provide technical assistance as needed and, in the context of a supportive policy setting, are ready to undertake decisions on possible financial assistance, responding rapidly."

Ukraine's Finance Minister  met with an IMF team on Thursday. In a statement, Pynzenyk said "the parties discussed a situation of influence the world financial crisis had on the economy of Ukraine." It is not yet known how much the IMF is expected to lend to Ukraine but it is expected to be between $3 billion to $14 billion. It is also not known what type of conditions might be placed on the loan. 

In addition to financial uncertainty, Ukraine is suffering from political turmoil with the current President, Viktor Yushchenko, calling a snap parliamentary election for December. The Prime Minister, ,  has made moves to stop the election. Ukraine's yearly trade deficit has increased by almost $7 billion since last year. 

The credit line by the European Central Bank is the first time publicly that it has extended help to countries other than the 15 that make up the . 

According to , Hungary might be able to start the process of joining the euro quicker then expected. Currently, Hungary is on track to join the euro in 2011 or 2012, but if sped up, it is possible it could join as early as 2010. This might protect Hungary from further financial problems.