By Suleiman Al-Khalidi
AMMAN (Reuters) - The Syrian pound rose to a seven-month high against the dollar on Tuesday, supported by a security crackdown on speculators and exchange dealers whom authorities blame for wild currency fluctuations in recent months.
Dealers and bankers said the pound's steady rise in October had accelerated in the last two days, taking the currency to around 120 to the dollar on Tuesday, its strongest level since April.
That compared with 153 pounds to the dollar on Thursday, the last day of trading last week, according to dealers in Damascus contacted by phone.
The pound has recovered from a record low of around 300 per dollar in July. This was due partly to receding fears of U.S. military action but more directly to the campaign against black market speculation, traders said.
"The dollar was brought down by the security apparatus's iron-fisted measures," said one dealer who requested anonymity. He listed at least a dozen exchange firms in central Damascus that were raided and shut down in recent weeks.
Scores of prominent dealers had been interrogated on charges of profiteering by hoarding dollars bought at cheap rates from the central bank, bankers and traders said.
"The fear factor has been instrumental. It was a powerful deterrent," said another licensed currency dealer, pointing to measures introduced in August to halt the dollarization of Syria's war-hit economy, including tough jail terms for traders caught pricing goods in dollars.
The benchmark central bank rate for the pound against the dollar stood at 138.8 pounds this week, meaning that for the first time, the Syrian currency was stronger on what remained of the black market than at the banks.
The pound remains significantly weakened by 2-1/2 years of conflict which has caused tens of billions of dollars' worth of damage, disrupted agriculture, devastated industry and wiped out foreign currency flows from tourism and oil exports.
It traded at 47 to the dollar before protests against President Bashar al-Assad erupted in March 2011.
Bankers said the recent security measures followed months of central bank intervention that depleted reserves by hundreds of millions of dollars and euros in a vain effort to prop up the currency.
The central bank was continuing to inject modest amounts of dollars into the banking system and licensed exchange firms, but with the black marketeers cowed and the shrunken economy crippled by the conflict, demand was now low.
"There is a lot of supply of dollars but not that much demand and that's helped bring down the dollar," said a senior banker in a subsidiary of a foreign based bank in Damascus.
"If you now go to Damascus, you will ask yourself where are the people, " said the senior banker, commenting on the drop in business activity in the once vibrant capital, one of the major trading and industrial urban centers in the region.
Recent gains by the Syrian army in parts of rebel-held northern Syria and Aleppo may have also given some psychological support to the pound.
Prime Minister Wale al-Halki hailed the pound's recovery on Tuesday, attributing it to "the great victories which our noble army achieved and the Syrian diplomatic successes, along with the successful decisions of the government... and Central Bank and the punishments for speculators."
He told a cabinet session that food prices - which have soared in recent months - had already fallen between 20 and 35 percent, and more decreases could be expected in coming days.
Whether the main factors are economic or security-related, the pound's recovery is another small victory for Assad's government, complementing its gains on the battlefield.
"The pound's higher exchange rate now is not indicative of the strength of the Syrian currency or the economic situation on the ground where there is paralysis," said a senior Damascus-based economist. "But for the regime, the strengthening pound is no doubt more than a symbolic victory."
(Editing by Dominic Evans and David Stamp)