Iran blast panics financial markets

An explosion which turned out to be a dam blast in southern Iran sent jitters through financial markets amid speculation that the country's only nuclear reactor had come under attack.

An explosion which turned out to be a dam blast in southern Iran sent jitters through financial markets amid speculation that the country's only nuclear reactor had come under attack.

The incident came as Iran and Syria announced yesterday that they would "form a common front" against external threats, and a day after the Islamic state confirmed that unmanned American spy planes were flying surveillance missions over nuclear facilities.

Iran's Arabic-language al-Alam satellite channel issued the first reports of an explosion in Deylam, about 100 miles from the Russian-built atomic plant at Bushehr, citing witnesses who said they had seen an aircraft fire a missile.

But the Islamic Revolutionary Guards Corps said the channel had been mistaken. Senior Israeli security sources were also quick to state that Israel had "no involvement".

Later explanations on state television suggested that a fuel tank had fallen from an aircraft.

The news of the explosion caused international stock markets to dip, while oil futures prices jumped by nearly a dollar before settling down. By the end of the day, however, Ali Reza Afshar, deputy to the chief of staff of Iran's armed forces, was playing down the incident. He said that "what happened was only a natural part of building work. These were heavy blasts carried out for the construction of the dam."

The Islamic republic has been the subject of increased pressure over its nuclear power programme, which the US and Israel say is hiding substantial efforts to build an atomic bomb.

Only hours before yesterday's explosion, the Israeli Foreign Minister, Silvan Shalom, was telling journalists at a breakfast meeting in London that Iran was just six months from reaching a critical point of knowledge that would allow it to develop a nuclear weapon.