Jaffna cut off by battle

One city resident told Reuters by telephone that prices for staples were up more than three-fold, with petrol selling for more than four times the going price before the latest fighting began three weeks ago.

A cash shortage also hit the remote northern city, with people rushing to withdraw money from local banks in anticipation of a possible evacuation, he said.

Witnesses and aid workers said gunfire and artillery shelling could be heard throughout the night and into the morning, but authorities eased recent curfew restrictions somewhat.

The Sri Lankan military said it had attacked Tiger naval units from the air along the Jaffna peninsula late on Friday.

"If this continues for another week, there won't be any more food," said Dilan, a pharmaceutical salesman who did not want to give his surname.

"People are withdrawing money from the banks, so there is no money to be had," he said by telephone. Communications with the region have been sporadic at best over the last week.

Police in Colombo, meanwhile, set up checkpoints at all roads leading into the city as part of security for the South Asia Games, being held in the capital, a government spokesman said.

"They have covered all entry points to the city. This is to ensure security during the SAG," he said.

Across the island, the United Nations High Commissioner for Refugees says more than 160,000 people have fled their homes -- 41,000 of them in Jaffna.

The city has long been a key rebel objective for the Liberation Tigers of Tamil Eelam, or LTTE, who are fighting the Sinhalese-majority state for a separate homeland for ethnic Tamils.

Initial reports said things were relatively quiet on Saturday around the eastern port of Trincomalee, just north of where the latest fighting began around a rebel-held water supply.