And with angry protests expected in flashpoint cities following Friday's weekly prayers, the American day of celebration was not looking much like a holiday in prospect for many of the troops on the ground.

In an apparent bid to appease local feeling in the town of Baquba, the Americans released a Shiite Muslim leader whose arrest had sparked a mass demonstration and promises of further trouble if he were detained longer.

The dead soldier, from the 1st Armored Division, was shot and killed by small arms fire while protecting the Baghdad Museum, US Central Command said.

He was in the gunner's hatch of a Bradley armoured vehicle at a guard post in the Rushafa neighborhood when he was hit.

Ten other soldiers were wounded in a mortar attack near the town of Balad, around 75 kilometres (45 miles) north of Baghdad.

"Ten soldiers were wounded in the mortar attacks against logistical support units near Balad," Specialist Nicole Thompson told AFP, lowering the number from the original 19 listed.

In Baquba, northeast of Baghdad, two people were detained overnight following protests in the town triggered by the arrest of the Shiite leader.

But Sheikh Ali Abdul Karim Madani, who was arrested early Thursday in a raid on his house by around 100 US soldiers backed by armoured vehicles and helicopters, was released early Friday.

Baquba residents, who were out in force in protest on Thursday, had planned a mass demonstration for Monday if the cleric was not released by then.

A charged atmosphere also prevailed in Fallujah, Ramadi and other nearby towns north of Baghdad that have been the scene of regular attacks on US troops, ahead of weekly prayers at noon.

But American troops in Iraq remained defiant, vowing "grand style" US Independence Day celebrations in Baghdad and the northern city of Mosul with concerts, barbecue feasts and surprise "morale-boosting" events.

Among them, was an appearance by action movie muscleman Arnold Schwarzenegger, showing off his new film, "Terminator 3: Rise of the Machines".

The celebrations to boost troop morale come at a time of growing US public concern over the rising number of US casualties in Iraq and how long US troops will be committed here.

A total of 67 US troops have been killed in Iraq since May 1, when President George W. Bush declared an end to major combat after the overthrow of Saddam Hussein. Of those, at least 26 have died as a result of hostile fire.

Back home, President George W. Bush was under fire for what his Democratic opponents call "macho rhetoric" that can only invite more guerrilla-style attacks on American soldiers.