UPDATE 2-Iceland's fragile economy slips back in Q4

* Q4 y/y growth 0.1 pct, first since crisis

* Q4 GDP down 1.5 pct vs Q3

* Q3 quarterly growth revised to 2.2 pct vs pvs 1.2 pct

* Economic recovery still fragile, says analyst

(Adds quotes, background)

By Mia Shanley and Niklas Pollard

STOCKHOLM, March 8 (Reuters) - Iceland's GDP shrank again in the final part of 2010 after expanding in the third quarter, underlining the fragility of its economy, which closed last year registering its first year on year growth since the financial crisis.

Iceland's top three banks collapsed in late 2008 as the global credit crisis struck, triggering a deep recession.

Consumer confidence has been slowly recovering and debt restructuring for households is finally under way, but analysts say the North Atlantic island's recovery remains on shaky ground as investment continues to nosedive.

"We are still not seeing any clear signs that we are on the way to a more robust growth in GDP," said Jon Bentsson, senior economist at Islandsbanki.

"We probably hit a trough in the latter half of 2010, so we might flatline from here or see very gradual growth. Growth should pick up pace in the latter half of the year."

Gross domestic product (GDP) shrank 1.5 percent in the fourth quarter from the previous three months, the statistics office said on Tuesday.

Year-on-year, however, the economy inched ahead for the first time since before the financial crisis, expanding 0.1 percent compared with a revised drop of 1.4 percent in the previous three months.

The third quarter figures were revised to a quarterly expansion of 2.2 percent from a previous 1.2 percent.

GROWTH AHEAD?

Bentsson said economic growth would return later this year, driven by a recovery in industrial investments, moderate growth in private consumption and continued trade surpluses.

Analysts expect a plan to ease capital controls further, details of which will be unveiled later this week, will also boost sentiment and investments in the country.

Helped by an IMF-led bailout, the economy and currency have stabilised from the island's worst-ever downturn. However, issues such a $5 billion repayment plan for Britain and the Netherlands for debts incurred in Icesave deposit schemes remain unresolved, creating much uncertainty.

The country's president refused to sign a parliamentary bill on Icesave, forcing a nationwide referendum which will be held next month. Ratings agency Moody's has said a "no" vote could mean a downgrade for Iceland's sovereign credit rating, which would very likely further delay a recovery.

This week, New Landsbanki -- the domestic rump of one of the banks that collapsed in 2008 -- was forced to take over Iceland's biggest savings bank as the country continues to grapple with the effects of the crisis.

Iceland's central bank signalled last month that interest rates were close to bottoming out after nearly two years of easing. Its next rate decision is due on March 16.

(Editing by John Stonestreet)