U.S. says Iran economy under strain, urges new nuclear policy

WASHINGTON Mon Oct 1, 2012 3:45pm EDT

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WASHINGTON (Reuters) - A precipitous drop in Iran's currency, the rial, shows that sanctions are cutting "deeper and deeper" into its economy, the United States said on Monday, reiterating Iran must rein in its nuclear program.

The rial plunged against the U.S. dollar in open-market trading on Monday, and has lost more than a quarter of its value over the past week.

The United States and its allies, who accuse Iran of seeking to develop nuclear weapons despite Iran's insistence that its atomic program is peaceful, have tightened sanctions this year, notably via a European Union embargo on Iranian oil and U.S. sanctions targeting banks that deal with Iran's central bank.

"Our understanding is that the Iranian currency has dropped to a historic low today against the dollar in informal currency trading -- this despite some frantic efforts by the Iranian government last week to try to prop it up, rearrange the way it dealt with these issues," State Department spokeswoman Victoria Nuland told reporters in Washington.

"From our perspective, this speaks to the unrelenting and increasingly successful international pressure that we are all bringing to bear on the Iranian economy. It's under incredible strain," she added.

Sanctions are "cutting deeper and deeper into the Iranian economy and this is an important factor in trying to change the calculus of the Iranian leadership," she said.

The United States and other countries are seeking to intensify pressure on Tehran "so that it will understand that the international community is not going to tolerate Iran with a nuclear weapon," she added. "They have to make a choice."

(This version of the story corrects city to Tehran in the final paragraph.)

(Reporting by Arshad Mohammed; Editing by Doina Chiacu and Cynthia Osterman)

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