TEHRAN (AFP) - A protest and scuffles with police broke out in central Tehran on Wednesday in the first sign of public unrest over Iran’s plunging currency, which has lost more than half of its value since last week.

Hundreds of police in anti-riot gear stormed the capital’s currency exchange district of Ferdowsi, arresting illegal money changers and ordering licensed exchange bureaux and other shops closed, witnesses told AFP. Several arrests were seen, carried out by uniformed police or plain-clothes security officers. The Mehr news agency said that two Europeans were among those arrested, for allegedly trying to report on the situation under the guise of tourists. It gave no other details and no Western embassy immediately confirmed that any of its citizens had been detained.

Smoke rose above the scene on Wednesday. Some appeared to come from at least two dumpsters set on fire, one of which was near the British embassy - evacuated last year after pro-government demonstrators stormed it. The source of other smoke could not be determined, with police directing pedestrians and vehicles away.

Individuals threw stones at police officers and a police car before running away, witnesses said. A protest in Tehran’s historic Grand Bazaar - a maze-like 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.

A police commander, Colonel Khalil Helali, was quoted by the Mehr news agency as saying police were going to take action against shopkeepers who closed their businesses, for “disturbing” the situation.

He downplayed suggestions of a widespread closure in protest, though, saying “the presence of people and onlookers does not mean a demonstration or a closure, and we had no reports of the bazaar closing.”

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.”

Mehr said the situation in central Tehran returned to normal late Wednesday. Journalists for foreign media in Iran were not permitted to go to the area to confirm events there and had to rely on eyewitness accounts. The crackdown was an apparent bid to halt a dramatic plunge in the value of Iran’s currency this week.

On Tuesday, President Mahmoud Ahmadinejad said Western sanctions were mostly to blame. But rivals said his mismanagement of the economy was the main cause.

Iran’s supreme leader, Ayatollah Ali Khamenei, vowed again on Wednesday that his country would not cede to Western pressure over its disputed nuclear programme.

“The aim of the pressure against the Iranian people is to make it yield. But it will never yield. That’s why the enemy is angry,” he said in a speech reported by the ISNA news agency.

Money changers said virtually no transactions were taking place in the market, making any valuation unreliable, but the rate was estimated to be around 36,000 to the dollar, about the same level as at the close of trade on Tuesday.

Online websites that normally track the currency market were censored, none giving the rial’s value against the dollar.

A week ago, the rial was trading at around 22,000 to the greenback and at 13,000 a year ago.

The money’s plunge has greatly increased inflation in Iran, which is widely seen as far higher than the official 23.5 percent cited by the central bank.

Food costs, notably, have spiralled, to the concern of Iranian families. Merchants, some of whom have lost millions of dollars in a day, say doing business has become nearly impossible.

The US government has said it sees the rial’s plunge as proof Western sanctions are having a big impact on the Islamic republic’s economy. But Ahmadinejad said that, even with the “psychological war on the exchange market,” Iran would not be pressured into curbing its nuclear activities - the stated aim of the sanctions. “We are not a people to retreat on the nuclear issue,” he told a news conference in Tehran.