KATHMANDU (AFP) - Demonstrations erupted in Nepal's capital on Saturday after the government hiked fuel prices by as much as 25 percent in a bid to save state-owned Nepal Oil Corp (NOC) from bankruptcy.

Protesters in Kathmandu burnt tires, blocked traffic and shouted slogans demanding the government scrap the price rises. Just east of the capital truck drivers parked their vehicles in the middle of a road and blocked it.

The government raised the price of petrol, diesel, kerosene and cooking gas late Friday to offset the impact of soaring global oil prices on the NOC, which sells fuel at subsidized prices in the impoverished kingdom.

"We had to take the harsh decision to save the Nepal Oil Corp from going bankrupt," Commerce and Industry Minister Hridayesh Tripathi told AFP. "The NOC has been suffering losses of 830 million rupees (11.17 million dollars) a month due to international petroleum product prices," Tripathi said. "Even with the increases, it will still face losses of around 2.9 million dollars a month."

The NOC, which holds a monopoly on the import and distribution of petroleum products, owes 161.16 million dollars to financial institutions including 121.12 million dollars to its sole supplier Indian Oil Corp, he said.

"The price hike was necessary as there was a danger NOC might not be able to continue oil supplies unless it cleared its dues," he said.