* Two security guards killed, plant halted after dawn raid
* Rebels have threatened to attack economic targets
(Adds Medvedev comment, Olympics details)
By Yevgeny Kayudin
BAKSAN, Russia, July 21 (Reuters) - Suspected Islamist militants in Russia’s volatile North Caucasus stormed a hydroelectric plant and killed two guards on Wednesday in an escalation of rebel attacks on Russian economic targets.
The attack in Kabardino-Balkaria was a blow to Kremlin efforts to contain the insurgency on its Muslim southern flank, where rebels stage near-daily attacks on civilians and police.
Power supplies were not disrupted but analysts say the raid shows that rebels are fulfilling their threats to target economic infrastructure as part of their struggle to create an independent Islamic state in the Caucasus.
It also shows that the insurgency, previously contained to Chechnya and nearby regions such as Dagestan, is now spreading beyond the traditional epicentre of violence.
Analysts say Kabardino-Balkaria’s proximity to Sochi, where the 2014 Russian Winter Olympics are due to be staged, could pose a headache to the Kremlin. The regional capital Nalchik is only 280 km (174 miles) east of the snow-based component of the Games. Moscow, by contrast, is 1,360 km north.
At least four militants burst into the Baksanskaya station at 0100 GMT and shot dead two security guards before detonating bombs in a turbine hall, disabling the plant, the Federal Security Service (FSB) said in a statement.
“This shows the scourge of terrorism is not only not subsiding, but expanding geographically,” said Gennady Gudkov, deputy head of the security committee of Russia’s parliament.
State-controlled Rushydro, which operates the station, said the blasts were caused by “a terrorist act.”
State television showed firefighters tackling a blaze and smoke billowing above the dam nestled at the foot of the Caucasus mountains, where rebels have their strongholds. Local media said it took three hours to contain the fire.
Three generators were put out of service, halting the work of the station, the Kremlin said in a statement.
Rushydro shares fell 1.5 percent at the market open, but recovered to 0.25 percent at its close. The overall Moscow index closed up 1.97 percent.
Security has been tightened at Kabardino-Balkaria’s strategic assets, President Dmitry Medvedev said in a statement after meeting FSB chief Alexander Bortnikov.
No one took responsibility but unofficial Islamist websites described the attackers as mujahideen fighters.
“I’m afraid this may have been a rehearsal for something much larger,” a member of the FSB’s National Anti-Terror Committee, Alexander Torshin, told Ekho Moskvy radio.
The insurgency leader and Russia’s most wanted man, Chechen rebel Doku Umarov, self-named “Emir of the Caucasus Emirate”, threatened a year ago to attack Russian energy pipelines and power stations as part of an “economic war” on Russia.
Umarov claimed responsibility for twin suicide bombings in the Moscow metro that killed 40 and the derailing of an express train in November that killed at least 26.
“I think this is a change in tactics,” said Grigory Shvedov, editor-in-chief of the Caucasian Knot www.kavkaz-uzel.ru Internet news agency. He said it would be reasonable to expect more attacks on economic targets.
Umarov also took responsibility for a disaster which killed 75 people at the Sayano-Shushenskaya dam in Siberia in August last year. The Kremlin at the time dismissed the rebels’ claim and most analysts agreed it was likely an industrial accident.
Baksanskaya is a relatively small plant built in the 1930s during the Soviet Union’s industrialisation drive. It has an installed capacity of 25 megawatts, which is less than half a percent of the capacity of the Sayano-Shushenskaya dam.
Media reports said local power supplies were unaffected because energy was rerouted from elsewhere.