REYKJAVIK, March 14 (Reuters) - Iceland lifted its remaining capital curbs on Tuesday, easing restrictions on households and businesses and ending more than eight years of controls put in place as its banks collapsed in the 2008 financial crisis.
The government started dismantling capital controls last year by easing restrictions for local residents. The end of the last controls, first announced on Sunday, came into force at midnight.
Iceland had been eyeing an end to the controls for years. The move will open the way for investment abroad by Icelandic pension funds abroad and improve prospects for foreign investment into Iceland.
The country's authorities have been girding for scrapping of restrictions, with the central bank amassing 815 billion Icelandic crowns ($7.4 billion) of currency reserves at the end of last year to ease the transition.
In January, Standard & Poor's upgraded Iceland's credit rating to A- from BBB+ based on its strong current account surplus and higher currency reserves. Fully lifting the capital controls could improve the rating further, it said.
Still, the process is likely to bring some volatility. The Icelandic crown posted its biggest one-day decline in eight years on Monday; the end of controls was expected to trigger initial outflows of pent-up foreign and domestic money.
However, the crown remains at historically strong levels, boosted over the past year by a tourism boom that has also spurred double-digit economic growth, raising some concerns of overheating.
"If you are an investor looking around, saying: where can I find positive yield, then Iceland may be a good destination," Danske Bank Chief Analyst Jakob Christensen said.
"But that is the dilemma for Iceland: it can easily be overwhelmed with capital inflows and it is very hard to manage for such a small economy." ($1 = 110.4900 Icelandic Crowns) (Reporting by Niklas Pollard, Daniel Dickson and Helena Soderpalm, editing by Larry King)