Sri Lanka war seen escalating as truce declared dead

By Ranga Sirilal

COLOMBO (Reuters) - Sri Lanka's 25-year civil war with Tamil Tiger rebels will likely escalate into the bloodiest period of fighting the island has seen after the government scrapped a tattered truce, experts said on Thursday.

Sri Lanka plunged back into war after four years of relative peace almost as soon as President Mahinda Rajapaksa took power in late 2005. But both he and the Tigers had held off scrapping a Norwegian-brokered truce to avoid appearing the villain.

With the pact now formally ended, hopes of resurrecting collapsed peace talks anytime soon are dead and investment in the $26 billion economy could suffer.

Sri Lanka's stock market fell 1.2 percent on Thursday as investors braced for escalation.

"This means all-out war. The government has dropped the peace option and has opted for a fuller military onslaught on the rebels," said Iqbal Athas, an analyst with Jane's Defense Weekly in Colombo.

Wednesday's announcement came hours after suspected Tiger rebels bombed a military bus in central Colombo, killing four people and wounding 24. It was the latest in a litany of attacks that have killed hundreds in recent months.

Violence continued on Thursday. The military said it destroyed six rebel bunkers in the northwestern district of Mannar, killing six Tigers, while the pro-rebel Web site, www.tamilnet.com, said the insurgents had thwarted a major army offensive and killed 10 soldiers.

Separately, two soldiers were killed in a mine blast in the northern district of Polonnaruwa.

More than 5,000 people have been killed since early 2006, taking the death toll since the war erupted in 1983 to around 70,000.

The government said the Cabinet decided to scrap the 2002 cease-fire because the Tigers were using it as cover to regroup and rearm and had violated its terms thousands of times.

However, it insisted the door remained open to talks in future if conditions allowed or if the Tigers laid down arms.

PUT BACK A DECADE

In Washington, U.S. State Department spokesman Sean McCormack said the United States was troubled by a decision he said would "make it more difficult to achieve a lasting, peaceful solution to Sri Lanka's conflict."

"We call on both the government and the Liberation Tigers of Tamil Eelam to avoid an escalation of hostilities and further civilian casualties," he said in a written statement.

In New York, U.N. Secretary-General Ban Ki-moon regretted the government's decision, his spokeswoman Michele Montas said, and was "deeply worried" that the withdrawal came amid intensifying violence in Sri Lanka.