* Iceland president seen securing re-election
* Rebellion over Icesave bailout popular with voters
* Frontrunner opposes EU membership bid
By Omar Valdimarsson
REYKJAVIK, June 28 (Reuters) - Iceland's irascible veteran President Olafur Grimsson has won over the hearts and minds of voters for standing up to Britain and the Netherlands over massive debts from a bank crash, an act of defiance likely to win him a record fifth term this weekend.
Grimsson, 69, who also opposes joining the European Union, was first a cheerleader for local banks' dizzy expansion abroad.
But after a 2008 bank crash, he salvaged his local standing by becoming a staunch defender of the island's strategy of protecting only domestic savers when the banks folded.
Iceland has made a good recovery from the banking collapse, which came to epitomise the excesses of the liquidity-driven boom which preceded the fall of Lehman Brothers. By contrast, much of the euro zone is still struggling.
The North Atlantic island nation was mired deep in recession for more than two years after the collapse. Unemployment soared from virtually zero to about 10 percent, and the economy shrank around 10 percent, but it has grown in the past five quarters.
Still, the crisis and austerity-laced recovery have tanked the popularity of government and parliament, leaving a vacuum that Grimsson has filled by tapping into a strong nationalistic undercurrent with his defiance of foreign creditors.
"Olafur Ragnar is simply the pride of this nation," said Elinborg Anna Arnadottir, 44, a beautician from Selfoss in southwest Iceland.
"It's more than enough to have a dysfunctional government. We know that our man will not do their bidding without question, but do his duty and meet the democratic needs of the people."
The defiant defence of his homeland against perceived bullying by major powers was a throw-back to earlier in Grimsson's political career, when he forged a reputation as a combative left-wing leader and served as finance minister in 1988-1991.
In 2010 and 2011 Grimsson vetoed bills approved by the centre-left government in parliament to pay about $5 billion to compensate Britain and the Netherlands, whose governments bailed out their nationals who had money frozen in high interest rate "Icesave" accounts in Icelandic bank Landsbanki.
The vetoes fuelled British and Dutch fury and trade body EFTA has taken Iceland to court. However, voters overwhelmingly approved the president's vetoes in referendums that boosted Grimsson's popularity.
"Basically, you could say this election is a referendum on whether the president did right by refusing to sign the Icesave legislation in 2010 and 2011," said Stefania Oskarsdottir, assistant professor at the University of Iceland.
"Many Icelanders liked his performance, saying 'finally, here is somebody who stands up for us'."
Grimsson also opposes Iceland's EU membership bid, which will be put to a referendum once negotiations with Brussels have been completed. For some, the recovery from the crisis has removed the need for joining of the 27-nation bloc, with which Iceland already has good trade links.
"We have gone through serious difficulties in the last three years, but we will not have a bright future if we do not stop the EU talks and reject the EU outright," said Sigurjon Hafsteinsson, 47, a fireman from Keflavik near the capital.
"The best way to safeguard the independence of this country is by re-electing Olafur Ragnar as president."
Opinion polls ahead of Saturday's vote have shown a clear lead for Grimsson, whose 16 years as president already make him one of Europe's longest-serving elected heads of state, over his main contender and local TV personality Thora Arnorsdottir, 37.
"There are a lot of people who never voted for him before, but now say that he stood up for Iceland on Icesave so they will," said Bryndis Hlodversdottir, Dean of Bifrost University
A fifth term would be a record for an Icelandic president. His predecessor, Vigdis Finnbogadottir, served four consecutive terms. Grimsson had originally said he would not stand again.
Before Grimsson, the presidency was largely a ceremonial post and his more interventionist stance has raised questions among some voters. Those questioning voters are the ones Arnorsdottir has sought to appeal to.
"I can't single-handedly change the atmosphere, but I can try to focus on what unifies us rather than what divides us," she said. "There has been a lot of mud-slinging. My hope is to use the influence of the presidency to close the trenches." (Additional reporting and writing by Niklas Pollard; Editing by Jon Boyle)