* Market under police supervision
* Unclear whether govt can stabilise currency
* Rial lost about a third of value in 10 days
* Slide cutting living standards, disrupting business
* U.S., EU may tighten sanctions further
By Yeganeh Torbati and Zahra Hosseinian
DUBAI/ZURICH, Oct 6 (Reuters) - Tehran's Grand Bazaar reopened under close police supervision on Saturday, traders said, days after clashes between riot police and crowds protesting against the collapse of the Iranian currency shut down the market.
The resumption of trade suggested authorities had succeeded at least temporarily in containing public discontent over the plunge of the rial, which lost about a third of its value in 10 days.
But it remained unclear whether the government of President Mahmoud Ahmadinejad would be able to stabilise the currency, which has been undermined by policy missteps by Iranian authorities and Western economic sanctions against Iran over its disputed nuclear programme.
On Wednesday, riot police fired tear gas, fought demonstrators and arrested money changers in and around the bazaar, one of the capital's main shopping areas. Ahmadinejad blames speculators for the rial's slide, which is eating into living standards and destroying jobs in the industrial sector.
The involvement of the Grand Bazaar in the protests was politically significant because merchants from the area were key supporters of Iran's Islamic revolution in 1979. Some traders said they shut their shops this week as part of the protests, while others cited fears over their safety.
"It is business as usual today. Shops are open and we are serving customers. Of course we are also watching the currency rates to see what is going to happen," one merchant told Reuters by telephone on Saturday, declining to be named because of the political sensitivity of speaking to foreign media.
Another said, "The dominant thing on every merchant's mind is concern for tomorrow. What really bothers us is the instability of the prices, even more than the high value for the dollar. Merchants need to be able to plan for their business and with instability in currency rates, that is almost impossible."
Ghassem Noodeh Farahani, head of a council of business associations, was quoted by Fars news agency as saying all parts of the bazaar had reopened with security forces present to prevent any interference by "disruptors and agitators".
"The merchants have never wanted to cause disruption and have always been friends and collaborators of the revolution," he said.
The sanctions, imposed because of Western suspicions that Iran is developing nuclear weapons, have slashed the country's hard currency earnings from oil exports, making it more difficult for the central bank to support the rial.
Ordinary Iranians have rushed to convert their savings into U.S. dollars to escape the rial's depreciation and avoid high inflation, which the government says is running at about 25 percent but private economists put much higher.
Although staple foods and basic consumer goods produced domestically are still generally available in Iran, the extreme volatility of the currency and prices has in the past couple of weeks begun to make some foreign products unavailable, Tehran residents told Reuters.
A seller of imported personal computer equipment told Reuters by phone he had halted sales because he could no longer calculate what his products were worth in rials.
In a report to the United Nations General Assembly that was released on Friday, U.N. chief Ban Ki-moon said the sanctions were having a "significant" effect on Iran's people and also seemed to be harming humanitarian operations in the country.
"Even companies that have obtained the requisite licence to import food and medicine are facing difficulties in finding third-country banks to process the transactions," he said.
But unless Tehran allows more international monitoring of its nuclear energy programme, Iran's economic pain looks unlikely to prompt Western governments to ease the sanctions, and may even encourage them to take further steps.
Democratic Senator Robert Menendez, on the U.S. Senate's Banking and Foreign Relations Committees, told Reuters this week he was considering how to expand U.S. sanctions against Iran - including how to freeze an estimated 30 percent of its foreign currency reserves held in banks outside the country.
Meanwhile, the European Union has begun discussing the possibility of a broad trade embargo against Iran, moving beyond the energy, business and financial restrictions imposed so far, EU diplomats said.