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The magnetic compass was first invented as a device for divination as early as the Chinese Han Dynasty (since about 206 BC), Formerly known as Sinan. The compass was used in Song Dynasty China by the military for navigational orienteering by 1040-1044, and was used for maritime navigation by 1111 to 1117. The use of a compass is recorded in Western Europe between 1187 and 1202, and in Persia in 1232. The dry compass was invented in Europe around 1300. This was supplanted in the early 20th century by the liquid-filled magnetic compass.
A working model of the oldest instrument in the world which is known to be a compass. The spoon or ladle is of magnetic lodestone, and the plate is of Bronze. The circular center represents Heaven, and the square plate represents Earth . The handle of the spoon points south. The spoon is a symbolic representation of the Great Bear. The plate bears Chinese characters which denote the eight main directions of north, north-east, east, etc., and symbols from the I Ching oracle books which were correlated with directions. Separately marked are the finer gradations of twenty-four compass points, and along the outermost edge are the twenty-eight lunar mansions. This type of compass has been scientifically tested and found to work tolerably well - It was used not for navigation, but for quasi- magical purposes.(ORACLE Think Quest http://library.thinkquest.org/23062/compass.html)
Prior to the introduction of the compass, position, destination, and direction at sea were primarily determined by the sighting of landmarks, supplemented with the observation of the position of celestial bodies. On cloudy days, the Vikings may have used cordierite to determine the sun's direction and elevation from the polarization of daylight; their astronomical knowledge was sufficient to let them use this information to determine their proper heading. For more southerly Europeans unacquainted with this technique, the invention of the compass enabled the determination of heading when the sky was overcast or foggy. This enabled mariners to navigate safely far from land, increasing sea trade, and contributing to the Age of Discovery.(http://en.wikipedia.org/wiki/Compass#Using_a_compass)
In the 14th century, the Syrian astronomer and timekeeper Ibn al-Shatir (1304–1375) invented a timekeeping device incorporating both a universal sundial and a magnetic compass. He invented it for the purpose of finding the times of salat prayers. Arab navigators also introduced the 32-point compass rose during this time.