Restrictions are to be placed on Uruguayan savings accounts when banks reopen on Monday, the country's government has announced.

The controls will come as part of an attempt to stabilise the country's financial institutions and put a brake on bank withdrawals.

An accelerating run on central bank reserves prompted the government to shut banks on Tuesday for the remainder of the week, as the economic crisis in Argentina began to infect its neighbour.

On Friday morning police were standing guard outside shopping centres and supermarkets in Montevideo after looters ransacked 16 stores during a general strike on Thursday.

Tension

In one case, about 50 people equipped with large black refuse sacks ransacked a self-service shop shouting "We steal to eat", reported local newspaper La Republica.

Panic sparked looting

"We have mobilized 5,000 police officers and two air force helicopters," Interior Minister Guillermo Stirling was quoted as saying.

Authorities said the capital was calm on Friday, but tensions still remained. They said 34 people had been arrested on Thursday.

The new financial restrictions will initially only apply to fixed-term dollar savings accounts, but correspondents say this could be the first step toward wider freezes and may spark more protests.

The full details of the new bill - called Strengthening the Financial System - were due to be publicised yesterday.

However, this was delayed as the government waited to hear the results of talks between Uruguayan delegates and the International Monetary Fund in Washington on a rescue package.

On Friday the European Commission said it would grant 200m euros ($197m) in aid to Argentina, Brazil, Paraguay and Uruguay, for the period 2002-6.

The money, of which 51.7m euros will go to Paraguay, is meant to fund economic and social reforms.

Latin fever

As Uruguay's troubles intensify, there are fears that the whole Latin American region faces a potential meltdown.

Brazil is being buffeted by fears that it could default on $250bn public debt if a left-winger wins the October presidential election.

Local newspapers in Uruguay have been reporting that the country was to receive a $1.5bn from the IMF next week, thanks to pressure from the US Treasury.

However, the spokesman said that press reports of "imminent" aid to Uruguay were "over-enthusiastic", but added: "There is a sense of urgency that things need to be done."

Uruguay has already received a $3bn support package from the IMF earlier this year.

The banking restrictions and continued closure of the banks risks inciting further panic in the country, as people remain unable to access their savings.

Withdrawals have already stripped hundreds of millions of dollars from the country's financial system.

The government is in the midst of debating further cuts in public spending, while also trying to boost morale in the country.