* Political process stalled again as Islamists object
* Deadlock undermines Egypt's attempts to restore order
* Huge protests on streets of Cairo, this time calm
* Country still reeling from deadly clashes on Friday
By Mike Collett-White and Tom Perry
CAIRO, July 8 Deadlock over Egypt's interim
prime minister entered a third day on Monday after the Islamist
Nour Party rejected candidates for interim prime minister,
prolonging the impasse amid huge protests that turned violent
and killed more than 35.
Egypt's military, which overthrew elected leader President
Mohamed Mursi on Wednesday, can ill afford a lengthy political
vacuum at a time of violent upheaval and economic stagnation in
the Arab world's largest nation of 84 million people.
Scenes of running street battles between pro- and anti-Mursi
demonstrators in Cairo, Alexandria and cities across the country
have alarmed Egypt's allies, including key aid donors the United
States and Europe, and Israel, with which Egypt has had a
U.S.-backed peace treaty since 1979.
At least 35 people died in violence on Friday and Saturday
in fresh turmoil that came two and a half years after autocratic
ruler Hosni Mubarak was toppled in a 2011 uprising.
While Sunday was calmer, the sight of huge crowds numbering
hundreds of thousands gathering in different parts of Cairo was
a reminder of the risks of further instability.
The transitional administration, installed by the army to
steer Egypt to fresh elections, put forward two possible
liberal-minded choices for the key position of interim prime
minister over the weekend.
On both occasions the Nour Party said no.
Nour had signed up to the army's roadmap for the political
transition, giving Islamist legitimacy to an audacious overthrow
rejected by Islamic parties aligned to Mursi's Muslim
That has given it leverage over the choice of the next prime
minister. But already accused by other Islamists of betraying
their cause, Nour must tread carefully to avoid losing support
among its core constituency.
Unlike Nour, its bigger rival the Brotherhood has said it
would have no part in the military-backed political process.
Thousands of its supporters are camped out in a suburb of
northeastern Cairo. They are refusing to budge until their
leader is restored - an unlikely outcome.
Others, like 55-year-old Hanim Ahmad Ali Al-Sawi, were
waiting outside the Republican Guard barracks where Mursi was
"We will not leave until Mursi returns. Otherwise we'll die
as martyrs," she said, as soldiers and policemen looked on from
behind barbed wire. She had been there with her five children
for the last three days in spite of the scorching heat.
For many Islamists, the overthrow of Egypt's first freely
elected president was a bitter reversal that raised fears of a
return to the suppression they endured for decades under
autocratic rulers like Mubarak.
On the other side of the political divide, hundreds of
thousands of Mursi's opponents poured into Cairo's Tahrir
Square, the cradle of the popular uprising to oust him.
On Sunday night, a carnival atmosphere took hold, and a
troupe of folk musicians played darabukka drums and mizmar
flutes as others danced and let off fireworks.
"I came out to protest today because we reject the terror of
the Brotherhood," said Mohamed Manndouh, a 21-year-old business
studies student, reflecting the mood among many across Egypt who
backed the military intervention.
The army has denied it staged a coup, saying instead it was
merely enforcing the will of the people after mass protests on
June 30 calling for Mursi's resignation.
People blamed the Brotherhood for economic stagnation and
trying to take over every part of the state, an accusation the
movement stringently denies.
Washington has not condemned the military takeover or called
it a coup, prompting suspicion within the Brotherhood that it
tacitly supports the overthrow.
Obama has ordered a review to determine whether annual U.S.
assistance of $1.5 billion, most of which goes to the Egyptian
military, should be cut off as required by law if a country's
military ousts a democratically elected leader.
But U.S. lawmakers said that was unlikely to happen.
"We should continue to support the military, the one
stabilizing force in Egypt that I think can temper down the
political feuding," U.S. Representative Mike Rogers said on
CNN's "State of the Union".
Egypt can ill afford to lose foreign aid. The country
appears headed for a looming funding crunch unless it can
quickly access money from overseas. The local currency has lost
11 percent of its value since late last year.
The governor of Egypt's central bank, Hisham Ramez, flew to
Abu Dhabi on Sunday, officials at Cairo airport said, following
Egyptian media reports Cairo was seeking financial aid from Gulf
states after Mursi's removal.
Egypt's foreign reserves fell $1.12 billion in June to
$14.92 billion, representing less than three months of imports.
Only about half are in the form of cash or in securities
that can easily be spent, and the IMF considers three months to
be the minimum safe cushion for reserves.