DAMASCUS, Syria - Rafik al-Hariri's assassination has rattled Beirut's political ties with Damascus but Syria's economic opening has helped cushion business relations, the head of the council overseeing bilateral ties said on Tuesday.

Lebanese exports and investments in Syria rose sharply last year despite Syria's pull out of its troops from Lebanon following the Feb. 14 killing of the former Lebanese prime minister in a car bomb, said Nasri al-Khoury, secretary general of the Higher Syrian-Lebanese Council.

Lebanese banks led foreign entry into the Syrian banking sector, drawing Syrian deposits and expanding their branch network, he told Reuters.

"There has been definitely a setback, but work over the last five years to open the two economies on each other has helped offset the political shock," Khoury said in an interview.

"We have seen a sharp rise in Lebanese exports and investments in Syrian banking, insurance, information technology and telecommunications," he added, referring to Syrian sectors opening up after 40 years of socialist central planning.

Lebanese exports to Syria rose to $187 million last year, 30 percent more than 2004. Syrian exports to Lebanon fell 18 percent to $196 million, mainly due to a drop in gasoline flows.

Lebanon's Mikati family is a major investor in one of two mobile phone firms in Syria. Lebanese Banks, such as Bank Audi and BEMO, launched operations in Syria last year. Byblos Bank is also expected to open in Syria soon.

But Nasri said that the deterioration in political ties after the Hariri assassination has taken a toll on tourism and labour relations between the two countries.

The number of Syrian workers in Lebanon, estimated at 300,000, fell, as well as the number of people travelling on both sides of the 250-km border also dropped.

"There has been some harassment of Syrian workers, resulting in a crisis in certain sectors of the Lebanese economy. The number of highly skilled Lebanese workers in Syria has however risen," said Khoury, a Lebanese.

Around 1.95 million Syrians entered Lebanon in the first nine months of 2005, a 27 percent drop over the year before. Lebanese entering Syria fell 16 percent to 1.35 million.

INSEPARABLE

A U.N. inquiry has implicated Syrian officials in the Hariri assassination, although Syria has denied any role in the killing and pledged to cooperate with the investigation.

"Sadly, sensitivities rose on the popular level between the two people, fuelled by media campaigns. The psychological damage of the Hariri assassination must be repaired," Khoury said.

The assassination forced Syria to withdraw its forces, which entered Lebanon after the start of the 1975-1990 Lebanese civil war. After the withdrawal, Syria placed restrictions on the movement of Lebanese trucks, damaging exports to Iraq.

"These problems have been solved now and Syria is back as the main transmit point for Lebanese goods," Khoury said.

Khoury said senior officials from the two countries continue to hold meetings on issues such as water, overlapping mobile phone networks and a gas pipeline. Syria is expected to start pumping 1.5 million cubic metres of natural gas by the end of 2007, a Lebanese official said earlier this month.

"I am encouraged because the social and economic relations between Syria and Lebanon are inseparable," Khoury said.

Lebanon, with its laisser-faire economy, has served as the breathing grounds for Syria for decades before President Bashar al-Assad, who took over power after his father's death in 2000, began opening the economy and attract foreign investment. (Reuters)