Iranian riot police have clashed with protesters in the capital Tehran over the collapse of the rial, the country's currency, which has lost a third of its value against the dollar in a week.

Police on Wednesday reportedly fired tear gas to disperse demonstrators, including currency exchange dealers.

It was the first sign of public unrest over the plunging currency.

The fall of the rial, which has now lost more than 80 per cent of its value compared with a year ago, with 17 per cent of its value shed on Monday alone, has been largely blamed on Western sanctions imposed over the country's nuclear programme.

The rial slipped another four per cent on Tuesday to close at 36,100 to the dollar, according to exchange tracking websites.

Hundreds of police in anti-riot gear stormed the capital's currency exchange district of Ferdowsi, arresting illegal money changers and ordering licensed bureaus and other shops closed, witnesses said.

Several arrests were seen, carried out by uniformed police or plain-clothes security officers.

A protest in Tehran's historic Grand Bazaar - a complex of shops vital to the city - also took place but was quickly put down by police.

"We closed because we don't know what is going to happen" in terms of the currency market, one shopkeeper said.

Economic 'war'

Khalil Helal, a police commander, was quoted by the Mehr news agency as saying that police were going to take action against shopkeepers who closed their businesses, for "disturbing" the situation.

The head of the national police, Esmail Ahmadi Moghadam, was quoted by the Fars news agency as saying a special unit comprised of police chiefs and government economic officials had been created "to combat those perturbing the currency market."

He added that many people were keeping stashes of foreign currency and gold at home, "which is having a negative effect on the economy".

The protests came after Mahmoud Ahemedinjad, Iran's president, said that his country will press on with its nuclear programme despite the problems caused by Western sanctions, including a dramatic slide in its currency's value.

"We are not a people to retreat on the nuclear issue," he told a news conference in Tehran on Tuesday.

"If somebody thinks they can pressure Iran, they are certainly wrong and they must correct their behavior," he said.

Ahmadinejad said the currency plunge was part of an economic "war" waged by the West on the Islamic republic and "a psychological war on the exchange market."

Iran, he said, had sufficient foreign currency reserves.

Those reserves were estimated at around $100bn at the end of last year, thanks to surging oil exports.

Enormous pressure

The White House said Tuesday that Iranians blamed their leaders for the rising deprivation caused by US and international sanctions over Tehran's nuclear program.

White House spokesman Jay Carney said the fast-deteriorating economic situation in Iran, which has also sparked price hikes in basic foods, was a sign the government in Tehran was under "enormous pressure".

"The Iranian people are aware of who is responsible for the circumstances that have befallen the Iranian economy as a result of the regime's intransigence in its refusal to abide by its obligations."

The US Treasury estimates Iran's foreign earnings have been cut by $5bn a month under the Western economic measures.

In his media conference, Ahmadinejad backtracked on hints he had made during a visit to New York at the UN General Assembly that Iran could consider direct negotiations with the United States on the nuclear issue.

"Direct negotiation is possible, but needs conditions, and I do not think the conditions are there for talks. Dialogue should be based on fairness and mutual respect," he said.

"I think that this situation cannot last in the relations between Iran and the United States."

Government critics

Hardliners in Iran criticized Ahmadinejad on his return for opening the door to the possibility of talks with the US. That also fuelled criticism that his government has mismanaged the economy.

The chairman of Tehran's chamber of commerce, Yahya Ale-Eshagh, was quoted as saying by the Mehr news agency that "part of this (currency) tumult is due to sanctions."

But he also said "the person who is not able to manage in a time of crisis should not continue working in his post."

Mohammad Bayatian, a member of parliament on an industry and mines commission, said, according to the parliamentary website icana.ir, that "a petition has been prepared to question the president."

He said the petition was "due to the government not paying attention to the parliament's remarks over its management of the forex market."

The parliament's presiding board was to decide whether to admit the petition. If it goes ahead, it would only be to hear Ahmadinejad speak on the issue, and it would not involve a confidence vote or other serious procedure.

Mehdi Mohammadi, a figure close to Iran's Supreme National Security Council, wrote in a piece for the Vatan Emrouz newspaper on Tuesday: "Is the currency situation in the market due to sanctions? No ... The problem is not a lack of (foreign) currency."

He blamed the government, and unidentified "mafias" he said were profiting from the currency volatility.

Mohammadi also said holding talks with the US was not an option.

"Past experience shows that speaking of negotiations in these conditions only sends a signal of weakness. The enemy only makes concessions and takes you seriously when you're strong," he wrote.

On the prospect of a military conflict breaking out over the nuclear issue, Ahmadinejad reaffirmed that he was "not very concerned" about persistent threats from Israel.

PHOTO CAPTION

A currency trader counts Iranian banknotes bearing an image of the late Ayatollah Ruhollah Khomeini.

Aljazeera