Thousands of Iranian firms are still doing business in the country's top trading partner, the United Arab Emirates, despite a US drive to choke Tehran's economy over its controversial nuclear programme.

But US banking sanctions are also beginning to bite, industry sources say.

Iranian businesses "have not had any problem with local banks because we are considered UAE companies" under local rules requiring at least 51 percent of a business to be owned by an Emirati national, said Nasser Hashempour, executive deputy president of the Dubai-based Iranian Business Council.

The same goes for fully Iranian-owned firms operating out of free zones "because they are registered in the UAE and their sponsor is the free zone," which would withdraw their licence if they flouted the rules, he said.

Similarly, foreign banks with branches in the UAE continue to deal with firms that have Iranian partners, "but they are more cautious -- they scrutinise them more when extending facilities," Hashempour said.

However UAE-based branches of international banks have "asked most Iranian individuals who have personal accounts with them to close their accounts," he added.

Many international banks, including British-Asian bank HSBC, Deutsche Bank and Swiss giants UBS and Credit Suisse, have stopped dealing with Iran in line with sanctions imposed by the United States to pressure Tehran into halting its programme of uranium enrichment.

Washington has blacklisted Iran's three main banks -- Melli, Mellat and Saderat -- for allegedly handling financial services for its nuclear and ballistic missile programmes and/or acting as a conduit for "terrorist financing."

A fourth Iranian bank, state-owned Sepah, is under UN sanctions stipulating a voluntary freeze by member states of its overseas assets, part of two sets of UN sanctions largely targeting Iran's nuclear and ballistic missile drives.

Washington and its Western allies are trying to expand UN sanctions against Iran, which denies Western allegations that it is trying to develop nuclear weapons.

Hashempour said banks Melli and Saderat are still operating in the UAE and its Gulf Cooperation Council partners -- Bahrain, Kuwait, Oman, Qatar and Saudi Arabia -- but that their operations are hampered by the refusal of foreign banks to accept letters of credit they issue or otherwise deal with them.

US President George W. Bush accused Iran of being "the world's leading state sponsor of terror" when he visited the UAE in January.

The oil-rich UAE is a US ally and has a long-standing territorial dispute with the Islamic republic. But it also has wide-ranging links with its neighbour across the strategic Strait of Hormuz, with booming Dubai serving as the lung through which Iran breathes as Washington tightens the economic noose.

There are an estimated 450,000 Iranians living in the UAE out of a total population of more than 4.1 million. About 10,000 Iranian firms operate in the country, chiefly Dubai, according to Iranian figures.

Iranian embassy statistics put bilateral trade at 11.7 billion dollars in the Iranian year ending in March 2007, with imports from the UAE forming the bulk of the exchanges at 9.2 billion dollars.

The embassy expects bilateral trade to rise to about 14 billion dollars by the end of the current Iranian year next month.

UAE figures corroborate this projection. According to the Dubai Chamber of Commerce and Industry Iran was the largest market for its members last year, with non-oil exports totalling a massive 9.8 billion dollars -- a 33.4 percent increase on 7.3 billion dollars in exports in 2006.

Iranians in the UAE also have accumulated assets estimated at more than 300 billion dollars, Hashempour said.

An official UAE source who requested anonymity said that Abu Dhabi "strictly abides by UN sanctions" against Tehran, and cited a recent case of a vessel bound for Iran that docked in Dubai.

"We were suspicious of its shipment, checked it and found it to be a dual-use hazardous chemical on a banned UN list. We impounded the cargo and notified the Security Council," the official said.

"Having become the world's third major trading hub, the UAE also had to update its own laws and last year passed the Export Control Law, which is not directed against any particular country but is designed to protect the UAE from those who would try to use its open economy to engage in illicit trade," he said.

As for unilateral US sanctions, these would have to be applied by private banks and companies and "it is not for the UAE government to tell private companies what to do," the official added.