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YANGON (Reuters) - British Prime Minister David Cameron and Myanmar opposition leader Aung San Suu Kyi gave powerful backing on Friday for the suspension of sanctions on the country, a sharp change in stance that could trigger a flood of investment in the resource-rich state.
Cameron, the first Western leader to visit Myanmar in decades, and Nobel laureate Suu Kyi said during a joint news conference in Yangon that sanctions should be suspended, but not lifted altogether, to pressure the civilian government to continue its reform drive.
Suu Kyi and Britain have long been the biggest advocates for enforcing sanctions, which critics say have kept Myanmar's 60 million people in poverty.
"I think the time is right to suspend rather than lift the sanctions," Cameron said. "This would allow us to put them back in place."
The comments by Cameron, the first British prime minister to visit Myanmar since it won independence from Britain in 1948, come 10 days ahead of the annual review of EU sanctions, which will be debated by all 27 member states in Brussels.
He said on Friday he would push for all EU sanctions to be lifted at that meeting, except for an arms embargo.
EU sanctions, which are less stringent than those of the United States, include assets freezes, bans on arms sales and investments or trade related to timber or mining of metals and gemstones. It does not prohibit investment in other sectors.
The restrictions also deny Myanmar access to the Generalized System of Preferences, which give trade privileges to poorer countries, but EU diplomats say changing that could take time.
Suu Kyi's support for temporary easing of sanctions will carry huge weight due to her international standing, with many Western diplomats admitting she has long had a major influence on their policies towards Myanmar.
Cameron earlier held talks with President Thein Sein and urged him to release all political prisoners, make peace with ethnic rebels and persuade hardliners in his cabinet and party that reforms were the best way forward.
Cameron spent three hours in Naypyitaw, the remote, sparsely populated and grandiose capital built by the former dictators, before flying to the biggest city Yangon to meet Suu Kyi, who he said was "a shining example" to the world.
"The prime minister said he was cautiously optimistic for the future and thought the president was sincere in what has happened so far," a source in Cameron's office who attended the meeting, told reporters.
Cameron's visit comes as countries jockey for business and influence in a country rich in untapped resources and desperate to attract foreign investment.
Also known as Burma, Myanmar has for years been the target of Western sanctions over human rights abuses. After winning independence - largely due to the efforts of Aung San, Suu Kyi's late father - a 1962 coup heralded 49 years of unbroken, brutal and inept military rule.
That ended a year ago after the transfer to Thein Sein's quasi-civilian government stacked with former generals, a hegemony now at risk after Suu Kyi's National League for Democracy (NLD) took 43 of 45 seats in April 1 by-elections.
While Thein Sein's reform drive has been widely accepted as a giant leap for Myanmar, Cameron said his government needed to back up promises that the changes would not be undone.
"We should be under no illusions about what a long way there is to go and how much more the government has to do to show this reform is real and irreversible," Cameron told reporters in Naypyitaw. "We should be very cautious and very skeptical."
It is understood that both leaders discussed the importance of convincing hardliners in Myanmar, including members of Thein Sein's ruling Union Solidarity and Development Party (USDP) - which was thrashed by the NLD in the recent election - that reform was the right path.
The comments by Cameron and more crucially, Suu Kyi, will make it all but certain that the EU will lift some of its "restrictive measures", temporarily at least, this month.
That would give European firms the green light to pile into Myanmar, where they fear Asian rivals that have already secured a foothold could boost their presence.
While the West seems set on lifting some sanctions, some experts say Myanmar's rapid opening up to foreign trade could result in rushed investments that benefit only the economic elite closely allied with the military old guard.
Writing by Martin Petty; Editing by Sanjeev Miglani