KATHMANDU, Sept 2: Nepal extended a curfew in the capital on Thursday to prevent fresh rioting as the embattled Himalayan kingdom marked a national day of mourning for 12 Nepalese killed by a militant group in Iraq.

Authorities imposed the curfew on Wednesday after thousands of protesters went on the rampage in Kathmandu, setting fire to its main mosque, attacking recruitment companies and Arab airline offices, and chanting anti-Islam and anti-government slogans.

Two people were killed in clashes with police and angry protests were also held in most major towns across Nepal. The curfew in Kathmandu was lifted for a few hours on Thursday to allow residents to buy essential commodities. People scurried home and vehicles were off the streets as soon as it was re-imposed.

There were no reports of trouble during the curfew relaxation between 6am and 9.30am, Kathmandu district administrator Baman Prasad Neupane said. "If we give longer relaxation, trouble may start again. We will evaluate the situation before deciding when to end the curfew," he told Reuters.

Soldiers carrying automatic weapons patrolled the deserted streets of the nation's capital, where a blockade by Maoist guerillas fighting against the monarchy ended last week.

Unburned tyres, black ashes and broken glass littered the streets. "No one has come to clean the streets. There is a lot of dust," resident Ashok Joshi said. Kathmandu's international airport was open, but several airlines, including from India and Pakistan, cancelled flights because of the curfew, an official said.

The European Union said it was "dismayed at the brutal killing" in Iraq and urged restraint as the country mourned. "It is important that the senseless killing of innocent people - both in and outside Nepal - is brought to an immediate end," EU heads of missions in Kathmandu said late on Wednesday.

A militant Iraqi group said it had killed the Nepalese hostages, who came to Iraq to work as cooks and cleaners for a Jordanian firm, and showed pictures of one being beheaded and others being shot dead.

A video recording showed two masked men, one in camouflage, holding down a hostage. One of the men used a knife to behead the hostage and then held his head aloft. The other hostages were shown with bullet wounds in the head and back. The government has ordered all offices, schools and colleges closed, and the national flag to fly at half mast on Thursday as the kingdom mourns. -Reuters