Sept. 30 (Bloomberg) -- Glitnir Bank hf, the Icelandic bank bailed out by the government yesterday, plunged the most in eight years as trading resumed in Reykjavik. Byr Savings Bank canceled talks with the lender about a possible merger.

Glitnir fell 71 percent to 4.55 kronur, the most since May 2000, after the OMX Stock Exchange lifted a suspension following approval of a government takeover by Iceland's Financial Supervisory Authority. The decline wiped 166 billion kronur ($1.56 billion) off the company's market value.

The government is taking control of Glitnir, one of five European lenders to be bailed out this week, after its short- term funding dried up. Iceland's No. 3 commercial lender had been in talks with Byr about a merger and the negotiations were canceled yesterday, according to a statement today.

Glitnir's securities will be moved to the observation list ``at least'' until shareholders decide whether to accept the government's offer, the exchange said.

The bailout followed those of Fortis in Belgium, Bradford & Bingley Plc in Britain and Hypo Real Estate Holding AG in Germany. Dexia SA today became the latest European lender to receive a government rescue.

Iceland's banks, which rely on money markets for funding, have been among the hardest-hit in Europe as investors shun all but the safest assets. The country's government is investing 600 million euros ($859 million) in Glitnir in return for a 75 percent stake.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.netChristian Wienberg in Copenhagen at cwienberg@bloomberg.net

Last Updated: September 30, 2008 11:49 EDT