More than 300 people were today reported to have been killed in a supermarket fire on the outskirts of the Paraguayan capital, Asunción, amid fears that the death toll could rise higher.

Two owners of the huge Ycua Bolaños supermarket were taken into custody and detained for questioning amid local media reports that some survivors had been unable to open doors as they tried to flee.

Firefighters found the supermarket's main door closed when they arrived, according to police, but shop officials denied that doors had been locked.

The fire broke out at midday yesterday, when the supermarket was packed with shoppers. District police commander Aristides Cabral said people inside reported hearing an explosion before flames swept through the multi-storey building and the ground floor collapsed into an underground car park.

Badly burned bodies, some with twisted limbs, were taken away from the scene as clouds of smoke rose overhead.

One TV station, Channel 9, reported that 340 bodies had been recovered, citing rescue workers and police accounts. Last night, Paraguay's interior minister, Orlando Fiorotto, confirmed that 256 people had died and said the toll was expected to rise.

Some victims were found hugging each other, one of them a woman with a small child in her arms, a firefighter told local radio. A disco opposite the supermarket was being used as a makeshift morgue.

Overnight, army troops unloaded truckloads of wooden coffins at makeshift morgues. Early today, tearful relatives were filing in to identify bodies.

"There are no words for this," said Orlando Correa, weeping after identifying the corpse of his six-month-old nephew. He then searched for his sister among lines of charred bodies.

"This is a moment of great anguish," said the Paraguayan president, Nicanor Duarte, who declared three days of national mourning, beginning today.

Officials said it was the worst tragedy in Paraguay since a failed military insurrection in 1947 had left around 8,000 people dead.

Francisco Barrios, who had been shopping in the store but managed to escape, told of a confusing scene minutes after the fire started, with people rushing for the doors.

"There were sparks, as if fireworks were going off," he said. "The store quickly caught fire and filled with smoke, triggering total confusion. I lost my wife and kids as I rushed to get out. Now I'm trying to find them."