Two opposition students and two other people were shot dead and 35 were injured, many by gunfire, at Beirut's Arab University, security sources said.

Police reported to have defused a rocket that was directed at the Hariri-run Moustaqbal (Future) newspaper in Beirut, shortly before it was set to launch.

"Luckily they discovered it. It would have resulted in a massacre. The newspaper is packed by journalists at this time of the evening," Editor Nassir al-Assad said.

Fighting started between students with sticks and stones on the university campus then spilled into nearby streets. It developed into exchanges of gunfire from assault rifles and pistols involving students and residents from both sides.

"The situation is very tense. Moustaqbal supporters are at the basketball stadium and Amal followers are at the soccer stadium. Both factions are separated by army troops," said the student who asked not to be identified.

He said followers of both factions used sticks, bottles and even broke desks to use them are weapons in the confrontation.

An opposition campaign against the government, which is struggling to recover from last year's war with Israel, has raised tensions between Sunnis and Shi'ites in Lebanon, still recovering from a 1975-90 civil war.

Hezbollah and Amal television outlets were quick to blame pro-government supporters for igniting the violence, however video footage on LBC shows the Shiite militia supporters hurling rocks and vandalizing parked vehicles in the predominantly Sunni neighborhood. (Watch a video of some of today's conflict)

At least 200 cars were smashed in the clashes pitting supporters of the Future movement, headed by parliamentary majority leader Saad Hariri, against an alliance grouping Hizbullah and Parliament Speaker Nabih Berri's Amal movement.

Soldiers fired into the air to try to disperse the crowds and were later deployed in large numbers in an effort to control the clashes. Thick smoke rose from the area, where rioters had set cars and tyres ablaze.

Soldiers used military trucks to evacuate scores of civilians trapped on the streets by the violence.

Rival television stations blamed each other's camps for the fighting. Witnesses reported shots fired at students from rooftops in the mainly Sunni areas and attacks by a Shi'ite mob on a Sunni-run school in another area of the capital.

Saad Hariri urged supporters to show self-restraint and calm and Hezbollah issued a statement urging its supporters to pull out of the streets around the university.

Prime Minister Fouad Siniora said from Paris where he was at an aid conference: "I call on everyone to return to the voice of reason."

The clashes died down after the appeals but tension in several Beirut neighborhoods was high after darkness.

DIM PROSPECTS

"It's a powder keg," analyst Oussama Safa told Reuters. "It doesn't seem to be a political decision to let it go there. It's spontaneous street violence."

The opposition launched nationwide protests on Tuesday which shut down much of Lebanon and sparked violence in which three people were killed and 176 wounded.

Lebanon won more than $7.6 billion in grants and soft loans at a Paris conference on Thursday to help it cope with a debt mountain and recover from war.

Lebanon is still struggling to rebuild from its 1975-1990 civil war and is weighed down by $40 billion of debt, equal to 180 percent of gross domestic product.

War between Israel and Shi'ite Hezbollah guerrillas last year left much of the country's infrastructure bombed and many villages wrecked.