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UPDATE 1-Senator works on tighter US sanctions for Iran

* Republican works on broader ban for Iran central bankdeals

* Kirk also seeks to blacklist entire energy sector of Iran(Adds comments from analyst) By Roberta Rampton

WASHINGTON, Oct 8 (Reuters) - Republican Senator Mark Kirk,who last year co-authored a package of U.S. sanctions on Iran'sbanking and oil sectors, is working on new legislation thatwould further tighten the economic noose on Tehran, an aide tothe lawmaker said Monday.

Kirk and other U.S. lawmakers are pushing to expandsanctions aimed at cutting off revenues they believe Iran isusing to advance its nuclear program.

Western nations believe Iran is trying to build nuclearweapons, while Tehran has insisted its program is for civilianpurposes.

Undermined by sanctions, Iran's currency lost about a thirdof its value in 10 days, sparking civil unrest last week.

Kirk is working on legislation that could be offered as anamendment to an annual defense policy bill that the Senate andHouse of Representatives must finalize after the Nov. 6presidential election.

The bill would seek to ban all international banks, whetherprivate or government-owned, from conducting transactions withany Iranian bank that is in any way connected to the CentralBank of Iran, an aide to Kirk told Reuters on condition ofanonymity.

Currently, only oil-related transactions with the centralbank are covered.

The bill would seek to blacklist Iran's entire energysector, and ban insurance or reinsurance services to Iran,making more transactions and services subject to sanctions, theaide said.

The only exceptions would be for food and humanitarian aide,and oil exports that are allowed under current sanctions law.

"As the Iranian regime continues to defy the U.N. SecurityCouncil and refuses to halt its uranium enrichment activities,Senator Kirk is committed to building a bipartisan coalition toimpose farther-reaching sanctions on the Islamic Republic," theaide said.

Kirk has been working from home in Illinois since January ashe recovers from a stroke.

FREEZE ON FOREIGN RESERVES

The United States has long barred American firms from doingbusiness with Iran. In December, the government adopted measuresauthored by Kirk and Democratic U.S. Senator Robert Menendezthat force international buyers of Iranian oil to cut theirpurchases.

Last week, Menendez said in an interview that he was workingon a bill to impose new penalties on foreign banks that handleany significant transactions with Iran's central bank.

Menendez said he is also looking at ways to freeze anestimated 30 percent of Iran's foreign currency reserves held inbanks outside the country.

Projections by one sanctions advocacy group, the Foundationfor Defense of Democracies, suggest that Iran has at least twoyears' worth of foreign exchange reserves to help support itseconomy, said the group's executive director Mark Dubowitz

New measures proposed by Congress could limit access tothose reserves, further limit Iran's ability to access foreigngoods and services, and encourage capital flight, Dubowitz said.

"I think Congress is trying to come up with a series ofmeasures that can have a dramatic and profound impact on Iran'sbalance of payments without imposing a formal trade embargo onIran," he said.

"The risk is that it ends up being too little, too late," hesaid.

U.S. Defense Secretary Leon Panetta said on Saturday thatthe international community will impose more economic sanctionson Iran if the country does not resolve concerns over itsnuclear program.

(Editing by Warren Strobel and Doina Chiacu)

((roberta.rampton@thomsonreuters.com)(Twitter

@robertarampton)(+202 898 8390))

Keywords: IRAN USA/SANCTIONS