WRAPUP 3-Cuba's Fidel Castro steps down after half a century

(Adds U.S. commerce secretary, investors)

By Anthony Boadle

HAVANA, Feb 19 (Reuters) - Ailing Cuban leader Fidel Castro stepped down on Tuesday 49 years after taking power in an armed revolution, closing the book on a Cold War career that made him an icon to leftists and a tyrant to his foes.

Castro, 81, who has not appeared in public since undergoing stomach surgery almost 19 months ago, said he would not seek a new term as president or as leader of Cuba's armed forces when the National Assembly meets on Sunday.

His retirement raised expectations for change on the communist island -- and calls for democracy by Castro's arch-enemy, the United States -- but Cuba experts said limited economic reforms were more likely than swift political transformation.

"I will not aspire to or accept -- I repeat not aspire to or accept -- the positions of president of the Council of State and commander-in-chief," Castro said in a statement published in the Communist Party's Granma newspaper.

U.S. President George W. Bush, who has tightened the decades-old economic embargo against Castro's government, said his retirement should begin a democratic transition.

"Eventually this transition ought to lead to free and fair elections. And I mean free and I mean fair," Bush said in Rwanda during a tour of Africa.

Cuba's National Assembly, a rubber-stamp legislature, is expected to nominate Castro's brother and designated successor Raul Castro, 76, as president. The defense minister has been running the country since emergency surgery forced his older brother to delegate power on July 31, 2006.

Raul Castro has promoted more open debate about the state-run economy's failings but is unlikely to make bold political changes to the one-party state. Fidel Castro will remain influential as first secretary of the ruling Communist Party.

"This is a crucial moment. Cuba wants change, the people want change," said Oswaldo Paya, Cuba's best-known dissident.

Frank Mora, a political scientist at the National War College in Washington, said Castro's successors will likely be forced to head down paths he would not approve. "He will not go into some sunset nor will he become that crazy uncle in the attic, but they are pushing him up those stairs," Mora said.

IN CUBA, SOME SADNESS, NO SURPRISE

Residents on the quiet streets of Havana reacted without surprise, some with sadness, to Castro's retirement, first announced on Granma's Web site in the middle of the night.

Castro has looked frail in his few videotaped appearances in the months since the first news that he was too weak to rule.

"The Revolution will continue. Fidel resigned in time. It is a wise decision. He let Cubans get used to his absence," said Lazaro, a building administrator sweeping a lobby in slippers.