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A member of the National Guard stands guard during a inspection of prices at a store in La Guaira outside Caracas

JORGE SILVA

Venezuelan authorities backed by soldiers temporarily closed dozens of retail outlets for price gouging after a currency devaluation that triggered a frenzy of shopping but met market approval.

President Hugo Chavez announced the devaluation last week, cutting the exchange rate of the bolivar against the dollar by half for oil income and for goods deemed nonessential in a move to bolster state coffers.

The measure strengthens the financial balance sheet in South America's largest oil exporter but risks angering the leftist government's supporters ahead of an election in September if prices rise and inflation speeds up.

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Prices for international flights have already doubled, as the airlines charged the new 4.3 rate that applies to non-essential items. Since 2005 the bolivar was fixed at 2.15.

Mr. Chavez is a strong believer in state intervention in the economy and has nationalized many industries in the OPEC nation. He uses currency controls to prevent capital flight.

After inspecting prices, Venezuelan soldiers and authorities closed at least two supermarkets belonging to a Colombian retailer controlled by France's Casino.

National Guard soldiers armed with automatic rifles forced the closure of a hardware store at the start of a day-long revision of retailers in the coastal town of the Guaira.

"We found a list where they were clearly remarking prices by up to 150 per cent," said Jose Useche, and inspector with the government's consumer watchdog.

Venezuelan bonds ticked down slightly on Tuesday but were still at their highest level since September 2008 after a major rally on Monday. JPMorgan raised Venezuelan bonds to overweight from market weight.

"The FX devaluation is unambiguously positive for fiscal accounts and should limit external debt supply," the bank said in a note on Monday, adding higher oil prices also influenced its decision.

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The devaluation, which creates two fixed exchange rates on top of a semi-legal black market where the bolivar is freely floated, was less well received on the Venezuelan street and by foreign companies operating in the Caribbean nation.

The new system sets a rate of 2.6 to the dollar for essential items like food and medicine, but gives a much lower rate of 4.3 to the dollar for other goods and oil exports.

On the freely traded black market the bolivar weakened to around 6.5 against the dollar on Friday on low volume and with very few people selling.

Thousands of shoppers have mobbed stores to snap up imported TVs and computers, worried their savings will lose value and prices will rise.

In a bid to calm nerves, Chavez sent troops to monitor prices in shopping districts. A total of 70 retailers have been shuttered and raids continued on Tuesday.

"The situation is terrible," said unemployed Manuel, 48, who was supposed to start work on Tuesday in the hardware store closed by the government. "I am living off the little cash I had saved, but that's now not going to stretch at all."

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The government says prices are being manipulated by Chavez critics who want to dent his popularity ahead of parliamentary elections in September.

Mr. Chavez is gambling he can underpin his 50 per cent support with increased spending in the lead up to the election and offset the negative reaction price rises may bring.

U.S. companies operating in Venezuela are bracing for the impact of the devaluation, which will raise the cost of their imports and is likely to reduce the value of bolivar profits.

Oil driller Helmerich & Payne Inc. said Tuesday it expects to take a hit in its second quarter results after the devaluation, with an expected exchange loss of about $20-million (U.S.). Its shares dropped 1.3 per cent.

Shares of Spanish phone company Telefonica, the biggest foreign investor in Latin America, fell nearly 2 per cent on Monday on worries it would see revenue losses for as much as $1-billion in Venezuela due to the devaluation.

Telefonica could take a 5 percent hit to its equity value because of the devaluation, analysts say.

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