Pakistani crisis eases after vote postponed

ISLAMABAD (Reuters) - Pakistan's political crisis appeared to stabilize on Thursday with parties looking ahead to an election in which the party of assassinated opposition leader Benazir Bhutto is set to make gains.

There were no reports of protests against an Election Commission decision on Wednesday to postpone the general election to February 18 despite the objections of the two main opposition parties which wanted it held on schedule on January 8.

"Incidents of violence have gone down, in that sense one can say the situation is better," said former government minister and political analyst Shafqat Mahmood.

"But the central issues which are dividing the nation remain, and the most divisive figure is Mr Musharraf himself," he said, referring to President Pervez Musharraf, the former military chief who took power in a 1999 coup.

Pakistani shares ended 4.82 percent higher after falling nearly 10 percent in the wake of Bhutto's assassination in a gun and bomb attack a week ago as she left an election rally in the city of Rawalpindi.

The murder of the charismatic Bhutto, an old Musharraf rival, and the violence that followed has fuelled doubts about stability and the transition to democratic rule in nuclear-armed Pakistan, a crucial ally in U.S. anti-terrorism efforts.

U.S. President George W. Bush, describing himself as a supporter of Musharraf, said the president should work with whoever wins the elections next month and said the world must help Pakistan overcome the turmoil triggered by Bhutto's death.

"It's in the interest of the world to help Pakistan recover from this terrible incident and have a strong democracy. That's exactly what the position of the U.S. government is," Bush told Reuters in an interview at the White House.

INVESTIGATION

Musharraf gave in to an opposition demand for outside help with the investigation into the assassination when he announced on Wednesday that British police would take part.

He said he was sure al Qaeda-linked militants were behind the attack on Bhutto, who had spoken strongly of the need to tackle militancy and had been threatened by militant leaders.

But many Pakistanis believe other Bhutto enemies, perhaps in sections of the security agencies, were involved, fuelling anger against Musharraf whose popularity had already slumped.

Musharraf rejected any suggestion security agencies were behind Bhutto's murder.

"In the last three months, there have been 19 suicide bombings, most of them against the military, against the intelligence," Musharraf told reporters.

"If the same military and same intelligence is using the same people who are attacking them, it's a joke."

The election had been regarded as a three-way race between Bhutto's Pakistan People's Party (PPP), the other main opposition party led by former prime minister Nawaz Sharif, and the party that backs Musharraf. The latter ruled until a caretaker government was set up in November.

The PPP is expected to ride a wave of sympathy but analysts are unsure how much that might abate over the next six weeks.

It was also unclear if the party would pick up more votes in its strongholds, which would not necessarily translate into more seats, or make inroads into vote banks of other parties.

Nawaz Sharif, who has allied himself closely to the PPP since Bhutto's death, is also likely to make gains at the expense of the pro-Musharraf Pakistan Muslim League.

"If Nawaz Sharif is able to maintain his working relationship with PPP and use Bhutto's assassination to attack President Musharraf, his party's chances in the forthcoming elections are much stronger than they have ever been," London-based Citigroup economist Mushtaq Khan said in a report.

Musharraf, whose re-election as president in October is still disputed by the opposition, will need support in the next parliament and looks likely to have to renew efforts to reach an understanding with Bhutto's party, analysts say.

But it won't be easy. "The anger about Benazir Bhutto's death will not go away for a very long time," Mahmood said.

(Additional reporting by Zeeshan Haider and by Tabassum Zakaria in Washington; editing by Dominic Evans)