Pakistani coalition wrangles over president, judges

ISLAMABAD (Reuters) - Pakistan's ruling coalition parties wrangled over the presidency and deposed judges on Sunday, continuing infighting critics say keeps them from tackling rising militant violence and a sagging economy.

The Pakistan People's Party (PPP), the leading coalition partner, said on Saturday the widower of slain former prime minister Benazir Bhutto, Asif Ali Zardari, would be its candidate in the presidential election set for September 6.

The move further annoyed another former prime minister and the chief of the second biggest party in the alliance, Nawaz Sharif, who has been pressing for reinstatement of judges purged by U.S. staunch ally Pervez Musharraf late last year in the face of PPP reluctance.

Musharraf resigned as president last Monday in the face of threatened impeachment by the coalition.

The deepening differences between the PPP and Sharif's Pakistan Muslim League (N) look increasingly likely to lead to a break-up in the six-month-old coalition.

"If they're taking steps unilaterally then what we can do? It looks like the People's Party wants to break ties with us," Sharif's party spokesman, Ahsan Iqbal, said on Sunday.

Sharif wants the post of president stripped of strong powers, in particular to dismiss parliament. But a senior official from Bhutto's party has made it clear that would only be dealt with after the presidential election.

Iqbal said his party's leadership would meet on Monday to decide on a plan of action after the move by the PPP.

A small coalition partner from North West Frontier Province (NWFP) said on Sunday it would support Zardari in the presidential election. The new president will be chosen by Pakistan's two chambers of parliament and four provincial assemblies.

"It's time to keep the coalition intact as the country is facing serious threats of growing militancy and a worsening economy. We have decided to support Mr. Zardari," said Zahid Khan, spokesman for the Awami National Party which leads the government in the NWFP.

SPREADING VIOLENCE, SAGGING MARKETS

As the politicians bicker, militant violence has surged, adding to a sense of urgency for the fractious coalition government to end infighting and turn its attention to security and pressing economic problems.

The violence and political uncertainty, on top of weak economic data, have undermined investor confidence and sent the country's financial markets on a downward spiral.

Pakistan's stocks and currency strengthened when Musharraf stepped down but then weakened as the political squabbling dragged on.

The rupee set a new low of about 77.15 to the dollar on Friday but ended at 76.10/20. Stocks finished 2.4 percent lower.

Pakistan's stock market, which rose for six consecutive years to 2007 and was one of the best-performing markets in Asia in that period, has fallen about 29 percent this year.

On the security front, Islamabad is under pressure from allies to control violent militants viewed as sheltering Afghan insurgents and threatening Pakistan's own stability.

In the latest confrontation, Pakistani troops and helicopter gunships targeted Islamist militant hideouts in the Swat Valley on Sunday, the military said, after fierce fighting killed 50 militants and 10 soldiers in the previous 24 hours.

Before the presidential issue emerged to distract the coalition from such fundamental challenges, the dispute between the PPP and Sharif's PML (N) -- bitter rivals during the 1980s and 90s when Bhutto and Sharif each were elected twice as prime minister -- centred on the fate of the judges Musharraf deposed.

The PPP is reluctant to restore the judges partly because of concern the deposed chief justice might take up challenges to an amnesty granted to Zardari and other party leaders from graft charges last year, analysts say.

Thrown together by opposition to Musharraf, differences are likely to loom larger now that he has gone, analysts say.

"If you look at the (parameters) of Pakistani politics, they're real fears and I've been fearing a lot that they'll go back to that kind of confrontation," Rasul Bakhsh Rais, a political analyst, said on Sunday on Dawn News television.

Sharif's party may not attend a meeting later in the day of a committee assigned to draft a resolution for restoration of judges, the PML (N) spokesman said, as Zardari, head of Bhutto's party, failed to give a commitment to reinstate judges by Monday.

"If they're not ready to give a promise, what use of going there. They have cheated with themselves, with us and now with the nation," Iqbal said.

(Editing by Jerry Norton and David Fox)