CAIRO (Reuters) - A bomb killed a French teenager and wounded at least 20 other people in a crowded square near a popular tourist bazaar in the Egyptian capital Cairo on Sunday, officials said.

The blast was the first fatal attack on tourists in Egypt since bombs killed at least 23 people at an Egyptian resort in the Sinai peninsula in 2006. Sunday's bomb went off near the 14th-century Khan el-Khalili market in eastern Cairo, where tourists shop for trinkets and sit at outdoor cafes.

I was standing in front of my store selling to the tourists and we heard a big explosion, a shop owner told Egyptian state television. We ran away, and when we came back we saw bodies lying on the ground.

The Health Ministry said a 17-year-old French girl was killed and 13 French tourists, three Saudis and four Egyptians had been wounded. The German Foreign Ministry said one German had been injured.

Egyptian state new agency MENA quoted security officials as saying the bomb had exploded under a bench in a garden in the square, and that a second bomb had been defused by security forces.

There was no immediate claim of responsibility, but security sources said two suspects had been taken into custody.

Islamic militants have hit Egypt's tourist industry in recent years through bomb and shooting attacks, though there has been a lull since 2006.

The bombing is embarrassing for the government, which has tried hard to project an image of security and stability, but angered public opinion at home and across the Arab world by helping Israel to enforce a blockade on the Hamas-run Gaza Strip, and failing to condemn its recent onslaught on the Palestinian territory more forcefully.

Security sources had earlier told Reuters that four people had died -- two tourists and two Egyptian street children. A similar blast in the same area killed three tourists in 2005.

The office of French President Nicolas Sarkozy said in a statement in Paris that one French national had died and seven others had been wounded.

SOCCER MATCH

The attack happened just after dark as people were gathering around coffee shops to watch a televised soccer match, a witness, who did not give his name, told Reuters.

There was a big noise but at first we thought it could be people celebrating, he said. But then some people running away started screaming and fell on the ground. There was a lot of screaming.

Egyptian television showed spots of blood on the paved square as police officers combed the area, which was quickly cordoned off as ambulances and police cars poured in.

We heard a huge sound but we didn't know what it was, a witness told state television. These are just innocent tourists who are not involved in politics coming to visit our country.

Some earlier witness reports cited by police or security officials had explosives being thrown from a motorbike or the upper storey's of an adjacent hotel.

Tourism in Egypt, the most populous Arab country, reached record levels last year after the recent lull in attacks. Tourism is one of Egypt's top hard currency earners.

The Islamist Muslim Brotherhood, a powerful opposition group whose members are often rounded up by Egyptian police, condemned the attacks.

The Muslim Brotherhood parliamentary bloc condemns the criminal event ... and refuses all armed violence whatever its reasons, it said in a statement.

Abdel-Monem Said, director of the state-funded center Al-Ahram Center for Political and Strategic Studies, said the attack did not appear to be the work of a well-organized group.

They were primitive devices and one didn't work, he said. The destruction was not large and it seems to be the work of some angry people, he said, adding that tourism had in the past bounced back quickly from similar incidents.

Tourism is bad lately because of the international crisis and also because of the Gaza war, he said. This could add to it, but in the past these kind of things haven't had a big effect.

Last September, masked gunmen seized 19 hostages, including 11 tourists, on a safari in a remote desert area of Egypt near the Sudanese and Libyan border. All were released unharmed.

Al Qaeda often condemns Egypt's government as a corrupt U.S. puppet and calls for its overthrow. Its deputy leader, Ayman al-Zawahri, said last September that it was among governments imposed (on Islam) by the Crusader-Zionist campaign.

(Additional reporting by Astrid Wendtland in Paris; Editing by Kevin Liffey)

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