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ISLAMABAD (Reuters) - A day after President Pervez Musharraf quit, leaders of Pakistan's fractious coalition government squabbled over the judiciary on Tuesday and a bomb killed 25 people, underscoring the challenges facing the nation.
Musharraf, the former army chief and key ally of the United States in its campaign against terrorism, resigned as president of nuclear-armed Pakistan on Monday to avoid impeachment.
Coalition leaders, who campaigned against Musharraf, met for several hours to set about tackling pressing economic and security problems and to discuss a new president but got bogged down over the fate of judges Musharraf purged last year.
The bickering and prospects of more to come are likely to dismay investors and allies.
"If they cannot agree on the restoration of the judges in a matter of days, then clearly something is not right with the coalition," said Farid Khan, an analyst at Credit Suisse.
"We cannot afford to lose months, or even weeks on these political issues. They need to get to the economy, and only a strong government can take the tough decisions needed for the economy," the Karachi-based Khan said.
Security is also a huge problem, as the suicide bomb attack at a hospital in the town of Dera Ismail Khan illustrated.
The bomber struck in the compound of the hospital as members of the Shi'ite Muslim minority were holding a protest against the killing of a leader earlier in the day.
Pakistani Taliban claimed responsibility.
Elsewhere in the northwest, 20 militants were killed in a clash, the government said.
The two main coalition parties who must now deal with these problems were bitter rivals through the 1990s when Benazir Bhutto and Nawiz Sharif severed alternating terms as prime minister. Analysts have said opposition to Musharraf bonded the old rivals and his departure could see them drift apart.
Sharif, who heads the second biggest party in the coalition, has been insisting the judges be restored to office.
But the party leading the coalition, that of the assassinated Bhutto, has wavered, partly because the deposed chief justice might take up challenges to an amnesty from graft charges granted party leaders last year, analysts say.
Leaders of two small parties in the four-party alliance played down the dispute but said they had been given three days to resolve the problem between the big parties.
"We have been assigned to reach a consensus on the situation within the next 72 hours," Fazal-ur-Rehman, leader of a small religious party, told reporters.
Prolonged wrangling over Musharraf's position before he quit had already hurt financial markets in the country of 165 million people, and raised concern in Washington it distracted from Islamabad's efforts to tackle militants.
Musharraf's resignation lifted Pakistan shares and the rupee on Monday and again on Tuesday when stocks jumped as much as 3.2 percent as investors cheered the end of political uncertainty over Musharraf's role as president.
But concern about the weak economy and the coalition's ability to deal with it pared gains.
The rupee strengthened as much as two rupees against the dollar in early trade but slipped to close at 74.53/60 compared with 75.30/45 on Monday.
Investors said Musharraf's resignation removed a hurdle in politics, but markets were now waiting to see if the government could rule effectively and tackle economic problems.
With the coalition partners' pre-occupation with Musharraf out of the way, the United States and other allies will be keen to see the government concentrate on fighting militants.
Even though Musharraf's buy-in to the U.S.-led war on terror was unpopular, the coalition government has assured Washington it too wants to control militants, who have provided refuge for Taliban and al Qaeda elements near the border with Afghanistan.
President George W. Bush said he appreciated Musharraf's efforts to deal with the problem.
Both U.S. presidential candidates, John McCain and Barack Obama, stressed on Monday the need for Pakistan to focus on security now that the question of Musharraf's presidency had been dealt with.
However, divisive questions still hang over Musharraf's future. There was no announcement on Monday on whether he would get immunity from prosecution and be allowed to live freely in Pakistan.
Sharif, the prime minister Musharraf ousted in 1999, has insisted he face trial for treason. Bhutto's party says parliament should decide.
Law Minister Farooq H. Naek told reporters there had been no resignation deal with Musharraf.
"He resigned himself and as far as his accountability is concerned, coalition partners will decide," Naek said.
Additional reporting by Koh Gui Qing in Karachi; Writing by Robert Birsel and Jerry Norton; Editing by David Fogarty