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BAGHDAD, (AFP) President Saddam Hussein promised Iraqis a swift victory in a speech to the nation yesterday, delivered a day after the US-led coalition suffered its worst losses so far in the war against his regime.

In uniform and flanked by the Iraqi flag, Saddam said after a new nights of severe air raids that "victory is near", that US and British forces were at "a dead end" and that his troops were readying to "bring joy to our friends."

Saddam's rallying cry to his troops came on the heels of a day of setbacks and loss of face for Washington.

The US-led forces also faced fiercer-than-expected resistance less than a week into the war, quashing hopes of a swift victory and bringing caution to over-optimistic world markets which had rallied at the outbreak of the conflict.

Oil prices climbed, the US dollar tumbled and stock markets were mixed.

Saddam's address also came amid continued speculation in the United States on the fate and whereabouts of the Iraqi leader following punishing air strikes which have flattened Iraqi command centres and government buildings.

Though he offered evidence of surviving early stages of the war by making reference to ongoing battles in southern Umm Qasr, he is known to use look-alikes as decoys. US forces meanwhile marched relentlessly on toward Baghdad, with US marines closing in on the capital from the southeast and US infantry to the west surging past Najaf, some 160 kilometres (100 miles) from the city. And coalition forces continued to pound the country, with dozens of explosions booming across Baghdad and the main northern city of Mosul.

Huge clouds of smoke billowed over the capital in the early hours after innumerable, deafening strikes that seemed to shake the very foundations of the city. Arabic news channel Al-Jazeera said Mosul, too, was rocked by fresh US-led air raids, the last of three which hit at about 7:20 am (0420 GMT).

For the first time in the five-day war, US forces had staged an air strike on Iraqi frontlines between the Kurdish-held northern town of Chamchamal and the key city of Kirkuk.

The strikes came after US forces not only moved past stiff resistance in southern Iraq but suffering their first significant losses in the Euphrates river town of Nasiriyah.

Washington acknowledged having endured its toughest day yet in combat, with a growing number of dead and captured US soldiers.

In the war of images, five frightened-looking US soldiers, including one woman, were paraded before Iraqi television cameras, a display aimed at humiliating Washington and rallying support for Iraq in the Arab world.

Al-Jazeera television first broadcast the Iraqi television footage, which also showed the bodies of what looked like dead US soldiers - images which were kept off the screens of US viewers.

Corpses lay stretched in a makeshift morgue, grisly red stains soaking through desert-coloured camouflage uniforms. The body of one young soldier rested in a thickening pool of blood, some appeared shot in the head.

The Pentagon said around 10 US soldiers had been taken prisoner, and Iraq said the troops had been killed in fierce fighting in Nasiriyah, where it claimed 25 US and British soldiers were dead.

Britain said none of its troops had been taken prisoner in Iraq but that two British airmen were killed by friendly fire from a US Patriot missile near the Kuwaiti border with Iraq. US President George W. Bush vowed that anyone who did not treat POWs under the Geneva conventions would be later dealt with as war criminals.

"If there is somebody captured, and it looks like there may be, I expect those people to be treated humanely," he said Sunday. "If not, the people who mistreat the prisoners will be treated as war criminals."

The International Committee for the Red Cross said the broadcast of the soldiers was a violation of the international rules of war and Iraq said it would respect the conventions. US Defence Secretary Donald Rumsfeld said the United States had about 2,000 Iraqi prisoners, all of whom were being treated in accordance with international conventions.

But he warned of harsh days to come in the war, notwithstanding progress by allied forces en route to Baghdad. He insisted that victory was certain, but added there was no guarantee it would be easy.

"There have to be tough days ahead," Rumsfeld said. "Wars are unpredictable. There are still a large number of difficulties and things that could go wrong that are still ahead of us."

"The progress in the air has been excellent and the progress of our special forces in the north and in the west has been excellent and in the south," he told NBC television. But the Pentagon played down reports of allied forces having discovered a "huge" chemical weapons factory at An Najaf in central Iraq, saying they were "premature".

"Media reports are premature," the US Central Command said, in a brief statement read by Pentagon spokesman Major James Cassella. But he added: "We are looking into sites of interest."

The British press reacted with shock Monday at the downing of the British Royal Air Force Tornado, which came shortly after two tragic air accidents that claimed 14 British lives.

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