Des Moines — Howard Dean, the self-described outsider of American politics, was dealt a humiliating defeat in the crucial Iowa caucuses last night, as John Kerry, a consummate Washington insider, won the opening battle for the Democratic presidential nomination.

Mr. Dean, a former Vermont governor who had been leading the campaign until its final days, finished third with the support of only 18 per cent of delegates.

At the top of the list with 38 per cent was Mr. Kerry, a 60-year-old Vietnam War veteran and current Massachusetts senator, who was being written off as a presidential hopeful just weeks ago but now stands as a real contender in next Tuesday's key New Hampshire primary.

"I've come from behind before and I'm going to take the same fight that I've been making here to New Hampshire," he said in an interview with Associated Press.

"Thank you, Iowa, for making me the Comeback Kerry," he told supporters later in the evening, accompanied on stage by fellow Massachusetts Senator Ted Kennedy.

Mr. Kerry promised that if he wins the nomination, he will "free our government from the grip of ..... powerful interests, whether it's a drug lobby or whether it's an oil industry. I'm running so that you will have a president who is on your side, not on the side of those powerful interests who fuel campaigns in America."

Senator John Edwards of North Carolina, also considered a long shot until recently, finished a strong second with 33 per cent. His folksy, positive approach and good looks proved a big hit in Iowa's small towns and farmland.

"I'm still introducing myself to people," Mr. Edwards told CNN, adding: "There are a lot of people in this country that don't have any idea who John Edwards is."

Mr. Dean, who has built up a huge fundraising and campaign organization, tried to cast his defeat in the best light possible, saying he was "delighted" to finish in the top three. "If you told me a year ago I would finish third in Iowa, I would have been delighted. It's been a tough campaign. We've taken a lot of punches," he said.

Mr. Dean said that his early campaign lead made him an easy "target" for his opponents and the media, and vowed to continue his anti-war campaign in New Hampshire, where he was flying late last evening.

"We will not quit now or ever," he later told about 1,000 supporters. "We have just begun to fight."

Also suffering a huge defeat was Congressman Richard Gephardt, who won the Iowa caucuses in 1988. He scored just 11 per cent and was preparing to drop out of the race and end his 33-year political career.

"My campaign to fight for working people may be ending tonight, but our fight will never end," he said in a late-evening speech.

The caucuses, which take place in 1,993 precincts across the state of three million, were more like public meetings than standard elections. Registered Democrats publicly stated their allegiance to one candidate and often debated and cajoled each other in an effort to win their neighbours over.

The process was expected to help winnow the lineup of candidates but not necessarily to produce a clear favourite for the Democratic nomination at July's convention.

"We're not expected to pick the nominee," said Iowa Secretary of State Chet Culver, a Democrat. "We're expected to narrow the field."

Although a caucus win is no guarantee of success at the Democratic Party convention in July — Michael Dukakis finished third in the crowded 1988 Iowa race but went on to win the nomination — this year's tight battle was expected to have a big influence on the first full-fledged primary election, which takes place in New Hampshire on Jan. 28.

Mr. Dean continues to lead in polls for that state, which is adjacent to Vermont. Wesley Clark, the political newcomer and former general, has seen his support rise in recent weeks, but decided not to campaign in Iowa, which political analyst Chuck Todd believes he will live to regret.

"Wesley Clark will be the big loser," predicted Mr. Todd, editor of Hotline, an on-line political newsletter. "He skipped Iowa, which was a huge mistake."

If so, the campaign for the Democratic nomination could last longer than originally expected, a mixed blessing for the Democrats.

A protracted race would give the party much-needed free publicity as voters focus on the race as a spectator sport, but would also quickly empty the coffers of most candidates, with the exception of Mr. Dean, who has been wildly successful in collecting small contributions from hundreds of thousands of backers through the Internet.

It's estimated that it costs a candidate at least $1-million (U.S.) a week to remain competitive in the primaries. Mr. Gephardt, who depends heavily on trade-union support, is believed to have the most serious financial problems.

Mr. Edwards is a wealthy trial lawyer, and Mr. Kerry is married to the widow of a Heinz ketchup heir, but even they will have trouble sustaining an expensive campaign without the influx of huge amounts of cash.

Hours before the caucuses opened, Congressman Dennis Kucinich asked his supporters to back Mr. Edwards where they failed to garner enough votes to qualify for delegates. Mr. Edwards said that the two men had agreed to encourage their supporters to back the other man if their own support fell between the 15 per cent "viability" threshold that is required for a candidate's name to remain standing in each precinct caucus.

"There are occasions where some of his folks can support me and vice versa," Mr. Edwards said.

The two men have diametrically opposed views on the war in Iraq, with Mr. Kucinich vehemently anti-war and Mr. Edwards voting in the Senate to support the conflict, but the two men have used a populist, anti-establishment approach to politics. Mr. Kucinich had been trailing badly in public-opinion polls, whereas Mr. Edwards has risen quickly in the recent stage of his campaign thanks to his feel-good appeal and vows to defend the little guy against corporate America.

Mr. Dean began the final stretch of the campaign with a clear lead, but he was seen to stumble on several issues, including his statement that the capture of Saddam Hussein would not make America safer from terrorists. He complained that his critics were using him as a "pincushion," and began to look vulnerable and bad-tempered to potential backers.

Mr. Kerry was initially seen as going nowhere but capitalized on his middle-of-the-road appeal and experience as a Vietnam War hero to finish strongly, attracting big crowds across the state.