Note: It's contested whether Utgard-Loki was a Jotun aspect of Loki or an unrelated giant. Here I assume the first, and that Loki's addition to this myth as a travelling companion came later. Whether you agree or not I hope you can enjoy the story.
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The way to Utgard was among sharp peaks of rock rimed with ice, so that Thor had to leave the goats behind for fear of laming them. There were times when the ground shook, with the tremors of earthquakes or the footsteps of giants he could not tell. At last he came to the hall he had set out for. It was a dark place, made from stone blocks stacked haphazardly into a building and mortared with frozen earth. To Thor as he entered the giants feasting there seemed little more than huge shadows in the torchlight. On a black throne twice Thor's height sat their king, dressed in garments made from dozens of fox furs and so much gold he outshone the smoky torches.
'Be welcome to my hall, Thor,' he said. He turned to face Thor then and Thor saw that he was Loki, but it was so hard to reconcile the huge and solemn giant with his friend that Thor could only gape. 'Why stare so, Thor,' continued Loki. 'Is this any way for a guest to behave?'
Thor shook his head. 'What nonsense is this, Loki?'
'Did Odin never tell you that I am a king in my own land?' asked Loki. The look of surprise on his face appeared genuine, but Thor had known him too long to believe it was possible to judge by that.
'Your people are causing trouble in Midgard,' said Thor. 'Something I might have expected had I known you were their king.'
'You wound me with such baseless accusations,' said Loki. 'My people are so strong that if they intended harm to men not one would be left standing.'
'They would have to face me first,' said Thor.
'You? Any giant here could crush you with one finger,' said Loki, laughter in his voice.
Thor looked up to meet Loki's eyes (and how strange it was to be looking up), confused by this disdain when Loki normally had a healthy respect for Thor's might. Those eyes disconcerted him further for normally light flickered and danced in them like fire behind green glass, now there was only a dull and steady glow. It left Thor not knowing whether he was dealing with his mischievous friend or a hostile giant.
'No giant can stand against me, as well you know,' said Thor stoutly.
'Shall we put that to the test?' asked Loki. 'It is the custom here, in any case, for guests to test their strength so that they may be treated according to their merits.'
'I shall fight any giant you choose,' said Thor.
'No, no. I don't intend to see you hurt,' said Loki. Thor expected him to wave his hand as he said it, used to Loki's rapid gestures, but his hands remained limp on the arms of the throne, as if they were carved there. 'I have an idea. There is a drinking horn here which a good drinker may drain in one swallow, we think little of anyone who cannot finish it in three. What say you?'
Thor raised his eyebrows. 'A drinking contest seems little like a fight, but I know that I can outdrink any man in this hall.'
'We shall see,' answered Loki.
The horn was brought and, although it was a big horn, it did not look too much to Thor who raised it to his lips with a will. Although he tasted mead there was something unpleasant beneath it, an oddly brackish taste in the back of his throat. Thor ignored it and continued to drink, but when he ran out of breath and lowered the horn the level was hardly lower than the rim.
'Your brewers are poor, there is something strange about this mead,' he said.
'Will you blame your failure on lacking a taste for Utgard's mead?' asked Loki. 'Drink.'
Thor did, tilting the horn again and drinking until he had to lower it to find the level hardly lower than before. He took a deep breath, tilted the horn, and drank until he thought his lungs and stomach would both burst. At last he could see a difference, the mead was almost a handspan below the rim.
'We shall have to find some other contest,' said Loki. 'The youngsters here often compete in lifting my cat, you are small enough that it should be a challenge for you. Even the smallest of them can get two of its feet off the ground.'
The cat emerged from where it had been sitting behind the throne, it was a large cat, easily the size of a wolf, with a long sleek body and wicked slit-pupiled eyes. But Thor saw he would have no trouble lifting it and quickly grabbed it around its middle. The cat hung limp in his hands, unresisting but surprisingly heavy, and although Thor pushed with all his strength its feet remained firmly on the floor. With one last burst of strength he pushed until he thought his spine would crack and finally one back paw was pulled from the ground.
'Enough!' said Loki. 'It is clearly too much for Thor.'
Thor dropped the cat reluctantly and watched it walk over to the throne, where Loki lifted one huge hand to pet its head, before it vanished into the smoke filled darkness of the hall once again. Thor raised his face, now red with exertion and shame, once more to meet Loki's eyes.
'Let me fight you,' said Thor, furiously. 'Then you'll see what I am capable of.'
'No,' said Loki, he smiled then, showing teeth sharp as a snake's. 'I told you I would not harm you. You are a guest here, and my kin besides. If you wish to fight I shall find someone suitable among my subjects.' He bowed his head as if in thought, but Thor could see he was hiding laughter and it made him angrier than ever. 'I know. Somebody find Elli, my old nurse. She should be a match for Thor in strength.'
One of the giants left the hall and came back with a giant-woman so old and bent she was scarcely bigger than a human. She hobbled in with her white hair falling in a tangled mass around her wrinkled face.
'I can't fight her,' Thor protested.
'Is she too much for you after all?' asked Loki. 'Would you rather accept your defeat and let us be?'
Thor swore at him, but turned to the woman and reached out his hands to grapple with her. She rested her hands, withered and claw-like with age, on his arms and her touch seemed light as a feather. But when she pushed Thor felt his legs buckle and his head swam with the effort of keeping his feet. Through the smoke he saw Loki's eyes, narrowed and glimmering with unreadable emotion. The old woman placed her hands on Thor's shoulder and pushed, causing him to fall to one knee. He gathered his strength, hunching his shoulders like a bear as he refused to be pushed further, but still he couldn't throw her off.
'Enough,' said Loki. 'I think we have had enough of contests. Thank you, Elli.'
Thor stood up slowly, feeling a cold ache in his joints and despair in his heart. What would stop these giants should they decide to take Midgard, or even Asgard, if even he, Asgard's champion, fell before the least of them?
'Come and eat,' said Loki, softly. 'The food here is good and you will feel better for it. Perhaps we shall even find some mead more to your taste.'
Thor looked away, unable to bear being pitied by Loki. But he had lost, he could at least show grace about it and play the part of guest. The food was indeed good, the mead too was surprisingly pleasant, and Thor set aside his worries long enough to make the most of it. Afterwards, however, he declined to stay the night and set off back to Asgard, wondering what he would say to Odin when he got there.
Thor had not gone far when he heard footsteps behind him, far too light and pattering to be a giant. When he looked back he saw that it was a giant, although a small one. Loki was dressed in rough travelling clothes and devoid of gold. Barely up to Thor's shoulder he was entirely the travelling companion Thor knew. But Thor turned away and strode on rapidly, not wanting to face him now however he appeared.
Loki ran to catch up with Thor and grabbed his wrist. 'Why so cold? I've hurt nothing but your pride and I daresay that will mend quickly enough.'
Thor shook him off with a snarl. 'You rule giants who could take Asgard if they chose and know their strength, and you ask why I am cold to you?'
'Indeed they know their strength, and yours too,' said Loki, eyes dancing as Thor glared at him. 'They know that Asa-Thor can drink so much that it lowers the level of the sea, lift the Midgard Serpent so high its tail leaves the ground and that even old age cannot bring him down further than his knees. And knowing that it will be a long time before they set foot in Midgard again.'
Thor, furious at being tricked, swung a huge fist at Loki which he ducked away from before he fled, laughing, with Thor behind him.