Chavez, who railed against imperialism and capitalism, named banks Santander and BBVA as possible targets, saying the OPEC nation did not need Spanish business.

"The king lost it," Chavez said at a late-night political rally. "He should say, '... I, the king, confess, I was beside myself, I made a mistake."'

At the weekend, King Juan Carlos told Chavez to shut up at a summit of leaders from Latin America and Iberia when the Venezuelan leftist interrupted a speech by Spanish Prime Minister Jose Luis Rodriguez Zapatero.

The controversy has tested relations with Spain, sparked headlines around the world and eclipsed debate in Venezuela over Chavez's effort to win approval in a December 2 referendum to expand his powers, including scrapping term limits.

"Whatever has been privatized can be taken back, we can take it back," Chavez said earlier at a news conference. "If the government of Spain or the state of Spain ... start to generate a conflict, things are not going to go well."

Spain, a top investor in Venezuela and the rest of Latin America, sought to ease tensions through diplomatic channels.

"We are fully convinced that due to action being taken on all sides it will be possible in a relatively ... short time, to return ties to normal," Foreign Minister Miguel Angel Moratinos said.

Spanish telecommunications giant Telefonica is also a major mobile phone operator in the South American country.

Chavez, who has been nationalizing swaths of the economy, took over the biggest phone company in Venezuela and also threatened to seize the whole banking sector this year as he tries to create a socialist state.

Spanish businesses have invested $2.4 billion in Venezuela since Chavez took office in 1999, according to Spain's Business and Commerce Council.

Grupo Santander has some $700 million in investment in Venezuela, while Banco Bilbao Vizcaya Argentaria SA has $670 million invested, according to figures provided by the companies.

CONTROVERSIAL COMIC

Chavez, who called former conservative Spanish Prime Minister Jose Maria Aznar a fascist at the weekend meeting, has courted controversy at summits before, most notably last year by calling U.S. President George W. Bush the devil at the United Nations.

Political analysts say Chavez relishes such fights because he uses them to fire up his support base among the majority poor at home with blunt rhetoric that plays on their misgivings of rich countries' investments in Latin America.

On Tuesday, he said the king's "arrogance" exposed that colonial attitudes toward South America have not died out.

But the folksy president also showed he had a sense of humor over the flap.

When a reporter asked him a series of questions about the raft of constitutional changes expected to be passed in next month's plebiscite, he joked: "Why don't you shut up?"