Violence hits as Pakistani politicians jockey

By Kamran Haider

ISLAMABAD (Reuters) - Government forces killed at least 44 militants in clashes in northwest Pakistan on Wednesday, and the stock exchange took drastic action to stop steady losses stemming from increased violence and political uncertainty.

Hopes for political stability in nuclear-armed Pakistan after Pervez Musharraf resigned as president last week were dashed when the ruling coalition, led by the party of slain former prime minister Benazir Bhutto, fell apart over a judicial dispute and replacing Musharraf.

The departure on Monday of the second biggest party, that of former prime minister Nawaz Sharif, ended what analysts said was an unnatural alliance between the two old rival parties and set the scene for a battle over the presidency.

The wrangling has distracted the government's attention from mounting militant violence, critics say, though the government says it is committed to the U.S.-led campaign against terrorism.

Military officials said on Wednesday that 44 militants were killed in two clashes near the Afghan border.

"We'll strike their hideouts. We won't show any kind of relaxation," the government's top Interior Ministry official, Rehman Malik, told reporters in Islamabad.

The United States, an ally and important source of aid for Pakistan, says al Qaeda and Taliban militants based in sanctuaries in the northwest plot violence in Afghanistan, Pakistan and the West.

Drawn out political uncertainty and militant violence have undermined confidence of investors who hoped Musharraf's departure would let the government focus on economic and security problems.

Pakistani stocks fell more than 4 percent to their lowest level in more than two years in intra-day trade on Wednesday. The benchmark Karachi Stock Exchange index has fallen for six consecutive sessions, spurring exchange action to halt the trend.

After a series of meetings that began at midday Wednesday and only ended after midnight, stock exchange authorities set a floor of 9,144 points for the Karachi Stock Exchange index.

DRUMMING UP SUPPORT

As investors sold their stocks, politicians drummed up support for the September 6 presidential election in which members of the country's four provincial assemblies and two-chamber national parliament will vote.

Bhutto's Pakistan People's Party has nominated her widower and political successor, Asif Ali Zardari. Sharif's party has put forth a former Supreme Court judge, Saeeduzzaman Siddiqui.

The main pro-Musharraf party nominated a former government minister and top party official, Mushahid Hussain Sayed.

No party has a simple majority of votes though analysts expect Zardari to be able to gather enough support to win.