Pakistan's election winners ponder coalition

The party of assassinated former Pakistan prime minister Benazir Bhutto began stitching together a coalition on Wednesday that could spell the end for President Pervez Musharraf, after winning the most seats in a general election.

The United States welcomed the vote as "a step toward the full restoration of democracy" but urged the next government of the nuclear-armed country to work with Musharraf, one of Washington's major Muslim allies in its fight against al Qaeda.

A wave of sympathy helped Bhutto's Pakistan People's Party (PPP) win the most seats in the National Assembly in Monday's election, in which the allies of former army chief Musharraf, who seized power in a 1999 coup, suffered big losses.

But the PPP needs coalition partners and the president's camp is banking on persuading it to invite the pro-Musharraf Pakistan Muslim League (PML) to salvage his leadership.

Bhutto's widower Asif Ali Zardari, who took over as PPP leader after she was killed in December, appeared to take that lifeline away by saying his party would not invite anyone from the PML into a broad-based coalition it planned to form.

The PPP wants Nawaz Sharif, the prime minister Musharraf overthrew in 1999, to join the coalition along with an ethnic Pashtun party that kicked Islamist parties out of power in the North West Frontier Province where militants operate.

"The dividing line is whether you were with the dictatorship or whether you were with those forces who were struggling for democracy," senior PPP member Taj Haider told Dawn Television.

Sharif, whose party ran a close second in Monday's poll, has made driving Musharraf from power his mission since returning from exile in Saudi Arabia in November, a month after Bhutto.

According to unofficial results for 261 seats, the PPP had won 87 and Sharif's party 67. The pro-Musharraf PML trailed with 38. Small parties and independents shared the others.

Musharraf's popularity has largely disintegrated over the past year, especially after he imposed a stint of emergency rule in November, purging the judiciary and gagging the media.

"Past experience with Musharraf is not good," said 30-year-old Karachi IT manager Ali Baloch, walking to work carrying a tiffin lunch box.

"Terrorism and other problems increased under the government of Musharraf. If his removal leads to a reduction in terrorism, then it is good," he added. "If these parties now get combined it will be a good thing."

Some analysts say ideological differences between the PPP and Sharif's party might make a coalition difficult and point out that Bhutto had considered a pact with Musharraf last year.

Pakistani stocks opened strong again, hitting a life high in early trade, as investors celebrated the peaceful election, saying it was the first step towards stability.

THE CHOICES

Intense negotiations are expected over coming days, and Zardari and Sharif are due to meet on Thursday. If they do not agree, the PPP's door could re-open to Musharraf's supporters.

But Sharif joining forces with the PPP would leave Musharraf with two choices that would mean his demise, said analysts.

He could either quit or drag out political upheavals with a hostile parliament that would try to oust him on grounds he violated the constitution when he imposed emergency rule.

"He has the graceful option and the confrontational option," said Ijaz Shafi Gilani, chairman of pollsters Gallup Pakistan.

In Washington, U.S. State Department spokesman Tom Casey said: "We certainly would hope that whoever becomes prime minister and whoever winds up in charge of the new government would be able to work with (Musharraf)."

White House spokeswoman Dana Perino said: "We hope that they continue to work with us as partners in counter-terrorism."

Apart from the PML, Musharraf has relied on two other sources of support -- the army and Washington. But Musharraf quit as army chief in November and U.S. support has been stretched thin over what critics saw as his autocratic behaviour over the past year.

Political paralysis has played havoc with management of the economy in the last six months, and Pakistanis have had to struggle with soaring fuel prices, shortages of basic foods and gas, and worsening power cuts.

But investors have appeared impervious to the problems.

The Karachi Stock Exchange's benchmark 100-share index was up 1.05 percent at a record 14,952.26 points in early trade, though dealers said a parliament hostile to Musharraf could be negative for the market.

The KSE-100 was one of Asia's best performing markets in 2007, when it rose 40 percent. It has also been one of Asia's best performing markets this year.

It has gained about 900 percent since 2000, and has recovered all the losses it suffered after Bhutto's murder.