WRAPUP 4-Iceland takes over biggest bank, shares halted

* Iceland takes over biggest bank Kaupthing

* Iceland's stock exchange suspends all share trading

* Premier says IMF help an option

By Brett Young

REYKJAVIK, Oct 9 (Reuters) - Iceland seized control of its biggest bank on Thursday and halted all trade on its stock market as the prime minister urged people to remain calm in the face of a financial meltdown.

By taking hold of Kaupthing KAUP.IC, the government of the north Atlantic island has now grabbed three of its biggest banks this week with Landsbanki and Glitnir also put under state control.

As the crisis deepened, the stock exchange suspended trading in all shares and said trade would not resume until Monday.

Prime Minister Geir Haarde told a news conference the country had not decided whether to seek help from the International Monetary Fund (IMF).

Negotiations to secure a 4 billion euro ($5.45 billion) loan from Russia will begin next Tuesday. Use of swap lines set up with Nordic central banks was a last resort, Haarde said.

He also urged savers not to withdraw large sums of money from the banking system, saying it would make the situation more difficult.

"I want to emphasise...that people remain calm and understand that the transaction system is fully functioning and deposits are safe," he said.

The prime minister said he had spoken to British Chancellor Alistair Darling, who had assured him that transactions between the two countries would return to normal.

British investors were keen clients of Icelandic banks before the storm hit and Iceland was outraged when Britain used an anti-terrorism law to freeze assets in Landsbanki.

Haarde warned earlier on Thursday of the risk of national bankruptcy after the central bank tried then abandoned attempts to prop up the currency.

Home to just 300,000 people, Iceland epitomised the global credit boom that turned to bust. Its banks expanded dramatically overseas, investors took large positions in its high-yielding currency and foreign money poured into local projects.