Cyprus's parliament has postponed until Tuesday a session to vote on a EU bailout deal that slaps a levy on all Cypriot bank savings, as negotiators scrambled to soften the blow for small deposit holders.
Amid rising anger and jitters on global markets, MPs had been due to vote on the measure Monday but the speaker Yiannakis Omirou said the session would now take place at 6.00 pm (1600 GMT) on Tuesday.
He said the postponement was agreed by parliamentary party leaders after being briefed by President Nicos Anastasiades.
The bailout deal, agreed at the weekend, sparked market turmoil on Monday and stoked fresh fears of debt crisis contagion.
Cyprus Finance Minister Michalis Sarris and Central Bank governor Panicos Demetriades separately told lawmakers they were seeking a fresh formula that would exempt smalltime bank depositors from the unprecedented levy.
They added they were looking to see a tax-free threshold for savings up to 100,000 euros ($129,000), but that under this plan deposits of more than 100,000 euros would be forced to take a bigger hit.
A EU source in Brussels said Nicosia and international creditors were busy discussing changes to the levy.
"We really want to reduce the impact" on smaller savers but the "idea is still to achieve the same objective, (of raising) 5.8 billion euros," the source said.
In the bailout accord agreed in the early hours of Saturday with the EU, the International Monetary Fund and the European Central Bank, Cyprus accepted a levy of 6.75 percent on accounts up to 100,000 euros and 9.9 percent thereafter.
The aim was to limit the overall size of the bailout to about 10 billion euros, rather than the 17 billion euros originally mooted.
But the move has triggered outrage in Cyprus, forcing the newly-elected government onto the defensive as it tries to get parliament approval for the rescue package.
The accord also dealt a serious blow to global confidence by stoking fears that other countries in difficulty might opt for the same course of action.
On the financial markets, which have risen strongly in recent months on hopes the worst of the debt crisis was over, the banks were hit badly Monday as investors looked for safety first.
"If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said CMC Markets analyst Michael Hewson.
"The feeling is that the euro crisis could be back and that you could see full-on contagion, that's why you're seeing the market reaction today," Shane Oliver, chief economist at AMP Capital in Sydney, told Dow Jones Newswires.
News of the controversial tax also drew a sharp response from Russian President Vladimir Putin, who, according to a Kremlin spokesman, called it "unfair, unprofessional and dangerous."
Russian Prime Minister Dmitry Medvedev too slammed the deal.
"We should say this directly: this simply looks like the confiscation of other people's money," Russian news agencies quoted Medvedev as saying. "I do not know who the author of this idea is, but this is what it looks like."
Several analysts said the measure was meant to make sure that Brussels did not spend billions propping up the at-times ill-gotten gains of rich Russians, who are widely reported to have exploited Cyprus's reputation as a tax haven.
Cyprus has repeatedly denied the allegations of being soft on "dirty money" and offered to open its accounts to international inspection.
Estimates vary but the Moody's rating firm estimates that up to $19 billion in private Russian cash is held in Cyprus. The figure accounts for between a third and half of all Cypriot deposits.
Anastasiades, in an address to the shell-shocked nation on Sunday night, said he had chosen "the least painful option" and that rejecting the EU demands would have seen Cyprus exit the eurozone and face bankruptcy.
Terming it the worst crisis to hit Cyprus since the 1974 Turkish invasion, he gave an assurance that those taking a hit now would be compensated when huge gas offshore gas deposits are eventually exploited, in about 2018.
Breaking news of the levy shocked Cypriots at the start of a three-day holiday weekend, many rushing to cash points and depleting them within hours.
Online transfers were stopped although shoppers were able to use credit cards at supermarkets and at fuel stations.
Local media said Anastasiades is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.
Reports said the president may have to declare an additional bank holiday on Tuesday following the parliamentary postponement in order to prevent accounts being emptied.