Protesters hold a banner during an anti- bailout rally outside European Union House in Nicosia, Cyprus, on Sunday.

Nicosia - The two main banks at the centre of Cyprus's financial crisis slashed the daily cash withdrawal limits from ATM machines on Sunday, state media reported.

With queues growing outside cash machines across the island, Laiki (Popular) Bank cut maximum withdrawals at ATMs to 100 euros a day and the Bank of Cyprus reduced its limit to 120 euros a day, the Cyprus News Agency said.

Laiki bank, Cyprus's second biggest lender, had already restricted withdrawals to 260 euros a day on Thursday after its ATMs were besieged by customers drawing their previous daily limits of 700 euros.

Cyprus President Nicos Anastasiades was in bailout talks in Brussels on restructuring the island's banks and dealing with a mounting cash shortfall via a “haircut”, or levy, of large bank deposits.

The Mediterranean island faces possible exit from the euro, with the European Central Bank due to halt funding on Monday. Cyprus banks are not due to re-open until Tuesday after a 10-day shutdown.

Parliament has already passed legislation to put all Laiki deposits over 100 000 euros into a “bad bank” where they will be tied up for years and may never be fully recovered.

But negotiations have stumbled on EU-IMF demands for a substantial levy on deposits above the same threshold in the Bank of Cyprus to avoid it facing similar restructuring. The island's largest lender, it holds more than a third of all deposits. - Sapa-AFP