The value of the Uruguayan currency has plunged after banking operations were suspended to try to stem a crippling run on deposits.

Withdrawals have already stripped hundreds of millions of dollars from the country's financial system as the economy suffers from the knock-on effects of the meltdown in neighbouring Argentina.

Banking is one of the mainstays of the economy

Nervous depositors rushed to cash machines on Tuesday, only to find they had all been switched off while the government decides how to save the banking industry from collapse.

BBC South America correspondent Peter Greste says that what began as a one-day pause in banking to buy the Uruguayan authorities a breathing space now looks likely to turn into a one-week freeze of the entire financial sector.

The peso - which has already halved in value against the dollar since 18 June - closed down 14.3% at 30 pesos to the dollar.

Economy Minister Alejandro Atchugarry said he was waiting for a swift agreement with international agencies for the release of fresh funds - something the United States has backed.

'Everything's imploding'

"That's it, everything's imploding today. The deposit freeze is coming," said one man who lined up to withdraw cash from an ATM machine.

New Economy Minister Alejandro Atchugarry faces a tough task

In recent weeks, there has been a massive amount of withdrawals from Uruguayan banks.

This has taken about 33% of deposits out of the country's financial system during the first six months of the year, according to official figures.

The problem has been made worse by mass withdrawals of cash by Argentines from their Uruguayan bank accounts.

Uruguay floated its currency late last month following a run on banks and a plunge in foreign reserves.

Reserves plunge

This was in part due to the knock-on effects of financial problems in Argentina and Brazil.

International reserves at Uruguay's Central Bank have fallen 76.6% since January.

The country's economy, which has experienced a three-year recession, relies on agriculture, tourism and banking.

An even deeper recession in Argentina has intensified fears that Uruguay could also face a sustained downturn.

Earlier this month, Uruguay's President Jorge Batlle appointed Mr Atchugarry as the country's new economy minister.

His predecessor, Alberto Bension, resigned on after losing support for his programme of austerity measures.

Earlier this year the economy shrank by 10% in three months, as the effects of the Argentine crisis were felt across South America.

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