Pakistan's Sharif sets new deadline on judges

ISLAMABAD (Reuters) - Former Pakistani prime minister Nawaz Sharif agreed on Friday to a debate in parliament next week on the restoration of judges deposed last year, putting back a deadline on a demand that could split the ruling coalition.

A day after militants carried out their most deadly strike against the military, killing 67 people in suicide blasts outside the main defense industry complex, coalition parties were still preoccupied with the controversy over the judges.

Investors and allies hoped the resignation of close U.S. friend Pervez Musharraf as president on Monday would end wrangling that has distracted attention from the nuclear-armed country's deteriorating economy and militant violence.

But the party of assassinated former prime minister Benazir Bhutto and its old rival and main coalition partner, Sharif's party, have failed to agree on the restoration of the purged judges.

Sharif has been demanding the judges be restored to the bench and had threatened to pull his party out of a coalition if that was not done by Friday.

But he told a news conference he had agreed to a parliamentary resolution and debate on the restoration, while setting a new deadline of Wednesday.

"This resolution should be tabled before parliament on Monday ... On Wednesday, it should be passed and the judges restored," Sharif said.

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

The wrangling has hurt Pakistan's stocks and currency which both strengthened when Musharraf stepped down but have weakened as a showdown loomed.

The rupee set a new low of between 76.90 and 77.10 in early trade on Friday while stocks were about 2 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.

THREAT

Sharif had already withdrawn his ministers from the cabinet after Bhutto's party missed an earlier deadline for action on the judges.

But even if his party were to move to the opposition benches in parliament it would not force a parliamentary election, analysts say.

Bhutto's Pakistan People's Party (PPP) is the biggest in parliament and should be able to gather enough support to remain in government.

Another divisive issue is likely to be the next president. The PPP is proposing Bhutto's widower, Asif Ali Zardari, and is set to make an announcement on his nomination on Friday.

The Election Commission said a presidential election would be held on September 6, with nominations due by August 26.

Under the constitution, a new president is elected by members of the country's four provincial assemblies and the national parliament within 30 days of the post becoming vacant.

The PPP and Sharif's party were bitter rivals during the 1990s when Bhutto and Sharif served two terms as prime minister.

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

With fighting in Afghanistan intensifying, pressure is also likely to build on Pakistan to act quickly to stop the Taliban launching attacks from sanctuaries in ethnic Pashtun areas on the Pakistani side of the border.

But Pakistan faces its own problem with militants, as illustrated by Thursday's twin suicide blasts at the ordnance plant in Wah, 30 km (20 miles) northwest of Islamabad.

The Taliban have targeted the military for the past year with a series of bloody attacks on posts, training camps, patrols and buses carrying servicemen and intelligence agency staff.

A Pakistani Taliban spokesman said the Thursday blasts were retaliation for military operations against militants in the northwestern region of Bajaur, on the Afghan border.

(Writing by Robert Birsel; Editing by Jerry Norton)