The U.S. embassy in Reykjavik urged Washington to back the loan, arguing that Iceland might otherwise turn to Russia, with whom it held ultimately unsuccessful talks over a 4 billion euro ($5.4 billion) bailout.

U.S. diplomatic cables published Thursday by the secret-spilling site include an October 2008 letter from Iceland's central bank governor, David Oddsson, to Timothy Geithner, then president of the U.S. Federal Reserve Bank of New York. It asked for a loan "of a medium term maturity, preferably in an amount of $1 billion."

The loan was not granted. Iceland eventually accepted a $2.1 billion loan from the International Monetary Fund, and billions more from individual countries.

Iceland's banks had expanded rapidly over a decade of booming growth, acquiring assets around the world but leaving themselves exposed when the credit crunch took hold. Iceland nationalized its three major banks in October 2008 and warned of a possible national bankruptcy.

Oddsson's letter, dated Oct. 24, 2008, said Iceland had agreed a bailout with the IMF but needed more help.

Iceland and the U.S. had discussed a currency swap that September, but the U.S. had been reluctant, in part because of the size of Iceland's banking sector, which had grown to dwarf the tiny nation's GDP.