Iranian riot police clashed on Wednesday with demonstrators and foreign exchange dealers in the capital Tehran over the collapse of the country's currency, which has lost a third of its value against the dollar in a week, witnesses said.

Police fired tear gas to disperse the demonstrators, angered by the plunge in the value of the Iranian rial. Protesters shouted slogans against President Mahmoud Ahmadinejad, saying his economic policies had fueled the economic crisis.

The rial has been plunging to record lows against the U.S. dollar almost daily as Western economic sanctions imposed over Iran's disputed nuclear program have slashed Iran's export earnings from oil, undermining the central bank's ability to support the currency.

Panicking Iranians have scrambled to buy hard currencies, pushing down the rial. With Iran's official inflation rate running at around 25 percent, the currency's weakness is hurting living standards and threatens to worsen a recent spate of job losses in Iran's industrial sector.

Tehran's main bazaar, one of the city's major shopping areas, was closed on Wednesday, witnesses said. A shopkeeper who sells household goods there told Reuters that the instability of the rial was preventing merchants from quoting accurate prices.

Bazaar official Ahmad Karimi Esfahani told the Iranian Labour News Agency that the bazaar had been closed because of shopkeepers' safety concerns, but would reopen on Thursday.

Open gallery view Iranian police officers blocking a street as garbage cans are set on fire, in central Tehran. Credit: Obtained by AP.