News of the blast sent markets sliding

Shortly after the blast, Jakarta's main stock index had fallen 4%, before recovery to close down 1%.

The slide follows four months in which shares have risen amid hopes for a peaceful presidential poll.

At least eight people are feared killed by what police say was a car bomb, with more than 130 injured.

The explosion hit the embassy at about 0330 GMT, sending plumes of white smoke into the air.

The BBC's Rachel Harvey in Jakarta says the blast left a large crater in the ground and damaged nearby buildings and motor vehicles.

It requires more than one bombing to change that perception that security risks in Indonesia aren't bubbling out of control Bob Broadfoot, PERC

Suspicion is likely to fall on the militant Islamic group Jemaah Islamiah (JI).

JI has been blamed for multiple previous attacks, including the 2002 Bali bombing - which killed 88 Australians and more than 100 others - and the Marriott hotel bombing close to the site of Thursday's blast which killed 12 in August 2003.

Turnaround

News of the explosion sent the markets into a tailspin.

Shares worth more than 1.5 trillion rupiah ($160m; �90m) changed hands in Thursday's morning session, double the amount traded in the whole of Wednesday.

The slide follows solid gains in recent days, in expectation of a smooth conclusion to the presidential poll runoff later in September.

"It's a bit of a panic," said Edwin Sinaga, a trader at Kuo Capital.

"It might delay the rally that we have expected ahead of the presidential election."

But experts felt that the blast may have limited long-term economic repercussions, particularly given recent successes by security forces against JI members.

"I think foreign investors understand the security risk in Indonesia," said Bob Broadfoot, managing director of Political and Economic Risk Consultancy in Hong Kong.

"They know they haven't been solved but they also don't think they are getting out of control.