Prime Minister Olof Palme devalued Sweden's currency 16 percent and ordered a general price freeze today in a sweeping austerity program aimed at stimulating the economy.

The devaluation of the krona, to make Sweden's products more competitive abroad, was the biggest in 34 years. The Stockholm stock exchange reacted with the heaviest trading in its history. Stock prices rose an average of 3 percent but dropped back later.

Norwegian Finance Minister Rolf Presthus said the move was a severe setback for Nordic cooperation. He termed it an attempt to export Sweden's problems to neighbors. "The Norwegian government will not devalue . . . but will shortly introduce measures that will offset the unfortunate consequences for Norwegian industry," he said.

The Finnish government, which devalued its currency, the markka, 4 percent Wednesday, said it would announce another devaluation Sunday. In Denmark, currency dealing was suspended after hectic trading put pressure on the Danish crown.

Palme, a Social Democrat, also promised higher wealth and sales taxes and fewer tax breaks for corporate stockholders. But he stressed that the higher taxes would be accompanied by increased government spending for jobs and housing.

"The government has no doubts that the Swedish people are prepared to make sacrifices, provided they lead to results and are shared equally," said Palme, who regained control of the government in the Sept. 19 general elections after six years of non-Socialist rule.

Palme said the devaluation would lead to a 5 percent increase in real prices during the next year and a lowering of living standards by 4 percent. But the general price freeze will alleviate the increased burden on consumers, he said.

Palme's conservative predecessor, Thorbjorn Falldin, said the devaluation would lower real wages drastically and possibly would double the inflation rate.

In Copenhagen, meanwhile, about 40,000 Danes took to the streets to protest welfare cuts and incomes policy. Work at several industries and schools came to a halt during the demonstration, which took place outside parliament while it was debating the new conservative-led coalition's economic austerity package.