Cyprus partially eases capital controls in new decree

Cyprus announced a partial relaxation of currency controls on Tuesday, raising the ceiling for financial transactions that do not require central bank approval, but keeping most other restrictions in place.

The island introduced curbs on money movements when banks reopened on March 28 after a two-week shutdown while the government negotiated a 10 billion euro bailout from the International Monetary Fund and the European Union.

Cyprus's status as a financial hub has crumbled in the space of a fortnight after authorities were forced to split one bank and slap heavy losses on depositors in a second in return for the financial aid.

Its capital controls are a first for the euro zone, introduced by Cyprus as it strives to prevent a cash drain.

A Finance Ministry decree on Tuesday, the third since controls were first introduced, raised the ceiling on transactions which do not require Central Bank approval to 25,000 euros from 5,000 euros. It also permits the use of cheques worth up to 9,000 euros per month.

Other restrictions introduced last week, including a 300 euro per day cash withdrawal limit and a 1,000 euro limit on the amount travelers can take overseas, remain in place.

The decree - signed by Cypriot finance minister Michael Sarris and dated April 2 - is valid for two days. Cypriot officials have said it could take up to a month for restrictions to be fully removed.

Cypriot President Nicos Anastasiades, who has been in power for just over a month, says he was forced to accept onerous terms imposed by lenders to avert a default and an exit by the island from the euro zone.

On Tuesday, he appointed three retired Supreme Court judges to investigate political, civil and criminal responsibilities over the demise of the economy, one of the bloc's smallest.

Cyprus last week agreed to break up its No. 2 lender Popular Bank , kept on an ECB liquidity lifeline for months, into a "good" and a "bad" bank. The bank's "good" assets will be transferred to Bank of Cyprus , where depositors have been forced into accepting massive losses on uninsured deposits of more than 100,000 euros.

The process, known as a "bail-in" sees 37.5 percent of deposits exceeding 100,000 euros converted into equity in the bank, and an additional 22.5 percent used as a buffer which could also be converted into equity if circumstances warrant it.

In a deal brokered early on Tuesday morning, it was also agreed that a small portion of the remaining 40 percent in uninsured deposits effectively frozen under the arrangement, 10 percent, be unblocked.

The Cypriot government had unsuccessfully argued that the entire 40 percent be unblocked, a source familiar with the consultations said.

(Reporting by Michele Kambas; Editing by Catherine Evans)