Late last month, Zurich-based Julius Baer said client data had been leaked. According to Swiss media, the data was then passed on to officials in North Rhine-Westphalia, a German state which has tapped leaked Swiss data before as part of efforts to hunt tax dodgers.

"We have opened an investigation in this matter," a spokeswoman for Swiss prosecutors said late on Wednesday.

According to Swiss media, an IT contractor in Zurich, acting alone, had leaked the data to NRW for an undisclosed payment. He was explicitly tasked with collecting and stealing data from the bank, according to Thursday's edition of Swiss weekly Handelszeitung. An individual is now in custody, the prosecutor's office said.

A spokeswoman for NRW's finance ministry said the state had "no indication" that its tax inspectors had broken the law.

NRW's acquisition of the data has angered its Swiss counterparts, led to an escalation of the war of words between Switzerland and Germany, and complicated a deal to sweep clean the hidden Swiss offshore accounts of alleged tax dodgers.

The deal, agreed in April but not yet ratified, looks set to fail in Germany after the opposition Social Democrats (SPD) say it is too lax on tax cheats.

Under the pact, Switzerland would levy a punitive retroactive tax on capital in Swiss bank accounts held by Germans and would levy a withholding tax on future interest income from those accounts.

Buying data on alleged tax dodgers is contentious because part of Switzerland's aim in seeking the tax deal was to put a stop to the flourishing traffic in leaked Swiss bank data. The practice is controversial in Germany as well, where justice minister Sabine Leutheusser-Schnarrenberger ruffled feathers at the weekend with comments in favour of making data purchases a criminal offence.

In April, Switzerland issued arrest warrants for three NRW civil servants, accusing them of industrial espionage for buying the bank details of German tax evaders.

Last year, Julius Baer agreed to pay German tax authorities 50 million euros ($63.02 million) to close a tax probe into the bank and its employees.

($1=0.7935 euros)

(Reporting By Oliver Hirt and Matthias Inverardi, writing by Katharina Bart; Editing by Mike Nesbit)

• A Permanent Economic Emergency