Pakistan will not tolerate incursions: Zardari

ISLAMABAD (Reuters) - Pakistan will not tolerate any infringement of its territory in the name of the fight against militants, President Asif Ali Zardari said on Saturday.

He was speaking after a series of U.S. strikes on militants in areas of Pakistan the-Afghan border that have infuriated many Pakistanis.

Zardari, the widower of former prime minister Benazir Bhutto, also said in his first address to a joint sitting of parliament that the biggest challenge facing the government is the economy.

Pakistan also needed peace with its neighbors and relations with old rival India should be "creatively reinvented", he said.

Zardari won a presidential election this month to replace firm U.S. ally Pervez Musharraf, who stepped down in August under threat of impeachment.

Zardari is close to the United States and had earlier promised to maintain nuclear-armed Pakistan's commitment to the U.S.-led "war on terrorism", even though it is deeply unpopular.

The United States and Afghanistan say al Qaeda and Taliban militants operate out of sanctuaries in remote ethnic Pashtun lands on the Pakistani side of the Afghan border.

Frustrated by an intensifying Taliban insurgency in Afghanistan, the United States has stepped up attacks on militants in Pakistan with six missile attacks and a helicopter-borne ground assault this month.

The army has vowed to stand up to aggression across the border. But a senior Pakistani official told Reuters earlier the latest missile strike, which killed five militants on Wednesday, was the result of better U.S.-Pakistani intelligence-sharing.

Zardari did not refer specifically to the United States but said territorial violations were unacceptable.

"We will not tolerate the violation of our sovereignty and territorial integrity by any power in the name of combating terrorism," Zardari told parliament.

ECONOMIC CHALLENGE

At the same time, Pakistan must stop militants from using its territory for attacks on other countries, he said.

India accuses Pakistan of arming and sending insurgents across the border into Indian-controlled Kashmir, where militants have been fighting security forces since 1989.

Pakistan says it offers political support to what it calls a freedom struggle in Indian Kashmir.

"We must root out terrorism and extremism," Zardari said.

Zardari said ties with India were being driven by enhanced trade and Pakistan wanted outstanding issues with its nuclear-armed neighbor, including Kashmir, resolved.

Meanwhile militant bombers struck twice in Waziristan on Saturday killing eight people, including five soldiers and a child, security officials said.

Zardari said the government's biggest challenge was the economy. The most urgent task was food security for the poor burdened by inflation.

He saw a new beginning for the economy "marked by a program of restoring investor confidence, resumption of foreign investment, gradual build-up of reserves, exchange rate stability and, above all, the revival of sustainable growth."

Acting finance minister Naveed Qamar unveiled a package on Friday that included eliminating fuel subsidies, cut its development budget, more privatization and slashing net borrowing from the central bank to zero.

Pakistan's current account deficit widened to $2.57 billion in July and August, the first two months of the 2008/09 fiscal year. That is equivalent to about 1.6 percent of gross domestic product, compared with a full-year target of 6.0 percent.

Foreign reserves have fallen below $9 billion, having hit a record high of $16.5 billion in October last year, while inflation is more than 25 percent. Pakistani stocks have fallen 35 percent this year and the rupee has weakened by 20 percent.

(Additional reporting by Aftab Borka; Writing by Robert Birsel; Editing by Angus MacSwan)