(Updates death toll, adds second police source)

NAJAF, Iraq, Sept 8 (Reuters) - An explosion in a market in the holy Shi'ite Iraqi town of Kufa on Saturday killed five people and wounded eight, police said.

The local hospital said four people were killed and six were wounded. One police source said a roadside bomb had caused the blast, another said it was a grenade.

Kufa is one of three religiously important cities for Iraq's majority Shi'ites that lie south of Baghdad. It is also the home-base of fiery anti-American cleric Moqtada al-Sadr.

In May, a suicide car bomber in the town killed 10 people when he drove a minibus into an open market packed with morning shoppers. That attack bore the hallmarks of al Qaeda.

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