SCENARIOS - What next in Pakistan's battle with the Taliban?

ISLAMABAD (Reuters) - Pakistani helicopter gunships blasted Taliban positions in the militants' Swat valley bastion on Saturday, as a curfew blocked residents from joining hundreds of thousands who have already fled the fighting.

The struggle in the scenic northwestern valley 130 km (80 miles) from Islamabad and a former tourism center has become a test of Pakistan's resolve to fight a growing Taliban insurgency that has alarmed the United States.

Here are some possible outcomes:

QUICK SUCCESS

Army chief General Ashfaq Kayani has told his top commanders the army was fully aware of the gravity of the internal threat and would "employ requisite resources to ensure a decisive ascendancy over the militants."

A quick defeat of the Taliban in Swat would allow the army to move on to tackle militant strongholds on the Afghan border, such as North and South Waziristan, part of a region from where the Taliban orchestrate their Afghan war and where al Qaeda plots violence. Quick success would reassure a public skeptical about the government's alliance with the United States and bolster support for unpopular President Asif Ali Zardari.

However, the Pakistani army has since its creation in 1947 focused on the threat from old rival India and critics say it is not trained or properly equipped for a counter-insurgency operation. That could make quick success a long-shot scenario.

INCONCLUSIVE CAMPAIGN

The army has in the past relied on artillery and air strikes to fight the militants, which critics say invariably involves civilian casualties and alienates the population when the army should be winning hearts and minds.

When pressed, the Taliban are likely to withdraw up remote side valleys, striking back with bomb attacks on military convoys, checkposts and camps. The Taliban can also be expected to step up attacks outside Swat, including suicide and other strikes in towns and cities, to create diversions and undermine public support for the campaign.

An inconclusive campaign in Swat, heavy civilian casualties and more bomb attacks elsewhere would undercut public support for the action and provide ammunition to critics who decry fighting "America's war." If the campaign fails to stop the militants, a frustrated United States could feel forced to step up strikes on fighters in border strongholds by its pilotless drone aircraft, while the government might try another peace deal like the one that has just fallen apart in Swat.

If history is a guide, this may be the most likely scenario.

REGIONAL SCENARIOS

Neighbors Afghanistan and India will welcome Pakistani action against militants. Both say militants from Pakistan are behind attacks on their countries and a Pakistani offensive can be expected to preoccupy the fighters at home.

But there's a danger militants might try to stage an attack in India to spark a confrontation between the nuclear-armed neighbours. That would divert the Pakistani military's attention and resources to its eastern border, as happened after November's militant assault on the Indian city of Mumbai.

ECONOMIC RISKS

Pakistan's financial markets and investors have to some extent become used to violence but a surge of bomb attacks in cities, especially the commercial capital Karachi, could undermine investor confidence just as inflation is easing and interest rates are coming down.

More fighting in Swat will swell a flood of people leaving,

which provincial authorities say could total up to 600,000. Several hundred thousand have already fled fighting in different parts of the northwest since August.

Many stay with friends and relatives or in rented accommodation but if the situation is protracted a large number are likely to join the tens of thousands already in camps, and the exodus still puts an extra burden on an economy propped up by a $7.6 billion International Monetary Fund loan.

(Editing by Jerry Norton and Dean Yates)