DHAKA (Reuters) - Bangladeshi traders said on Sunday that an Indian ban on exports of rice at less than $650 per tonne would cause further volatility in Bangladesh markets, where food grain prices have risen nearly 60 percent in the past six months.

The ban will particularly affect rice imports by Bangladesh's private sector, which brings in the bulk of grains imported every year to fill the gap between production and demand and to build emergency stocks in the calamity-prone south Asian country.

"The latest export restrictions imposed on Saturday will stop all private sector rice imports from India," said K.A. Mannan, a trader in Dhaka.

But Bangladesh government officials said the Indian decision to increase the minimum rice export price by 30 percent to $650 per tonne did not include 500,000 tonnes bought by Bangladesh under a state-to-state deal.

The purchase, under a special offer by India, was negotiated after the devastating cyclone Sidr battered large parts of Bangladesh on Nov. 15, killing around 3,400 people and making millions homeless.

The worst cyclone since 1991 also destroyed nearly 1.8 million tonnes of rice in the fields and caused huge damage to infrastructure.

"India's decision to increase the minimum export price will have a psychological impact on our domestic markets and consumers," said Molla Waheduzzaman, secretary of the Disaster Management Ministry.

"We have so far imported nearly 2.9 million tonnes of food grains, mostly rice, in 2007-2008 financial year (July-June), against last year's imports of 2.4 million tonnes," Waheduzzaman told Reuters on Sunday.

Bangladeshi traders said the Indian ban would encourage illegal imports of rice -- Bangladesh's staple food -- from India, where the domestic rice price was much lower.

"It will naturally encourage illegal deals and the legal importers will face trouble," said Bangladeshi trader Mahabubur Rashid Khan.