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Last Updated: Wednesday, 6 August, 2003, 17:22 GMT 18:22 UK
Iran blocks share price gains
Tehran stock exchange
The stock exchange is often full of day traders
The Tehran Stock Exchange has taken steps to try to halt an explosive rally in share prices amid fears the market could be headed for a crash

The head of Iran's stock market sent a statement to brokers forbidding share price increases for a two-week period.

Iran's stock market has been one of the best performers in the world this year, gaining nearly 80% since the start of the financial year in March.

The country's main share index has risen by 11% in the past week alone.

But there are already concerns that the rally is unsustainable, and that the country's investors could end up being badly burnt.

The oil effect

The surge in share prices has enticed many ordinary savers into the stock market who, so far, have enjoyed the chance to make some easy money.

The gains have been driven by high oil prices, an increase in the amount of cash being repatriated from abroad since the 11 September attacks, and rapid growth in the number of private investors.

But many fear that the rally will be unsustainable if oil prices fall next year, as widely expected.

Experts say that capping share price rises can work if previous increases were caused by market manipulation, but not if the market is being driven by genuine demand.


"Price caps work in the short-term but can create a backlash in the long-term," Professor Mehrdad Valibeigi, an Iranian economy expert at American University in Washington DC told BBC News Online.

"People will hold their breath for fifteen days, and then start aggressively buying again, prolonging the inevitable," he explained.

Brokers were also worried about the impact of the cap on prices, with one broker telling Reuters that the action will destabilise the market.

The psychological impact of an official intervention may also deter institutional investors.

Sources say the central bank of Iran and the Tehran Stock Exchange have been at odds over whether to intervene in the market over the past weeks.

The stock market fell by 4% on Tuesday after the price cap was announced.

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