By Fredrik Dahl
VIENNA (Reuters) - Iran has virtually halted a previously rapid expansion of its uranium-enrichment capacity since Hassan Rouhani became president, a U.N. inspection report showed on Thursday, in a potential boost for diplomacy to end the Iran nuclear dispute.
In another finding that may be seen as positive by the West, the quarterly report by the International Atomic Energy Agency (IAEA) said no further major components had been added to a potential plutonium-producing reactor since August.
The marked slowdown in the growth of Iranian activity of possible use in developing nuclear bombs may be intended to back up Rouhani's dramatic shift in tone towards the West after years of worsening confrontation, and strengthen Tehran's hand in negotiations with world powers due to resume on November 20.
The Arak reactor, which Iran previously said it would start up in the first quarter of 2014 but later postponed, is of great concern for Western powers as it could yield weapons-grade plutonium once it is operating. It was a major sticking point in talks between Iran and the powers in Geneva last week.
Iran has "more or less frozen" construction of the heavy water reactor, a senior diplomat familiar with the IAEA report said.
The quarterly IAEA document - scrutinized by Western governments - was the first that included developments only since Rouhani took office on August 3, prompting a diplomatic opening during which Iran and six major powers have made progress towards ending a standoff over its nuclear activity.
It also showed that Iran's stockpile of higher-grade enriched uranium had risen by about 5 percent to 196 kg (431 pounds) since August, largely due to a temporary halt in converting the material into reactor fuel.
But the amount of uranium gas enriched to a fissile concentration of 20 percent still remained below the roughly 250 kg (550 pounds) needed for a bomb if processed further - an amount that Israel has indicated is a "red line" that could trigger military action against the Islamic Republic.
Tehran denies Western and Israeli accusations that it is seeking nuclear weapons capability, saying it is enriching uranium only for peaceful energy. But its refusal so far to curb its nuclear program, or open it up to unfettered IAEA inspections, has drawn tough sanctions that have severely damaged the OPEC giant's oil-dependent economy.
NO MORE ADVANCED CENTRIFUGES
The IAEA said Iran had installed only four first-generation centrifuges - machines used to refine uranium - at its Natanz plant since August, making a total of 15,240. In the previous three-month period, May-August, it put in place an additional 1,800. Not all of the installed centrifuges are operating.
"Adding four means adding basically nothing. There is absolutely no technical reason. Clearly it is a choice not to increase the number of centrifuges," the senior diplomat said.
The report by the Vienna-based U.N. watchdog also said Iran had not installed any more advanced centrifuges, which can refine uranium must faster than the breakdown-prone IR-1 model and have also fanned concern in the West.
Rouhani, a relative pragmatist, succeeded bellicose hardliner Mahmoud Ahmadinejad in August, promising to try to settle the decade-old nuclear dispute and secure an easing of trade and financial sanctions.
Negotiations between Iran and six powers - the United States, Britain, France, Germany, Russia and China - are scheduled to resume next week with both sides saying they are optimistic following headway at talks at Geneva last weekend.
The powers want Iran to halt its most sensitive nuclear work and take other measures in exchange for limited sanctions relief as part of a confidence-building deal that would buy time for talks on a more far-reaching diplomatic settlement.
(Editing by Mark Heinrich)