The New Nation - Internet Edition

Agencies, Islamabad

Pakistan's president will not step down as head of state and intends to serve out his five-year term, his spokesman said, despite a sweeping victory by his opponents in an election that President Bush on Wednesday judged to be fair.

Final results from this week's parliamentary poll were expected later Wednesday, but with the count nearly complete, two opposition parties have won enough seats to form a new government, though they will likely fall short of the two-thirds needed to impeach the president.

The result is seen as a major political setback for Musharraf, a key ally of Washington in fighting Taliban and al-Qaida, whose popularity has plummeted over the past year. The victors were secular political parties; Islamic hard-liners fared badly.

Bush, the Pakistani leader's chief foreign backer, declared Wednesday that the elections were a "victory in the war on terror."

"There were elections held that have been judged as being fair, and the people have spoken," Bush said in Ghana during his current trip to Africa.

"It's now time for the newly elected folks to show up and form their government," Bush said. "The question then is 'Will they be friends of the United States?' I certainly hope so."

European Union monitors said the election went better than expected, but conditions during the campaign period favored the ruling party.

So far, the parties of two former Pakistani prime ministers, the slain Benazir Bhutto and Nawaz Sharif, have garnered 154 of the 268 contested seats, according to the Election Commission. The various parties already have begun discussions on forming a coalition government, likely to be led by Bhutto's party.

The new government, expected to be installed by mid-March, will determine how to tackle the country's formidable challenges, including rising prices and the threat from Islamic extremism.

Pakistan's new leaders also must decide how to deal with Musharraf, who seized power in a 1999 coup and went on to become a key ally in the U.S. war on terror, an unpopular decision in the Muslim nation of 160 million.

Musharraf's spokesman Rashid Qureshi said Tuesday the president intends to work with the new government and will serve out his term that expires in 2012 - rejecting opposition calls for him to resign.

"The people on Monday didn't vote to elect a new president," he said. "In fact, they participated in the elections to elect the new parliament."

But Musharraf's decisions to suspend the constitution, purge the judiciary and round up political opponents sent his approval ratings plummeting, and the sound defeat suffered by the pro-Musharraf party was widely seen as a repudiation of the president.

The party of Pakistan's assassinated former Prime Minister Benazir Bhutto began stitching together a coalition on Wednesday that could topple President Pervez Musharraf, after winning most seats in a general election.

President George W. Bush described the vote, which was less violent and fairer than most people anticipated, as "a victory for the people of Pakistan," while a State Department spokesman urged the next government to work with Musharraf.

Musharraf is a key Muslim ally for the United States in its fight against al Qaeda, and also oversaw better ties with rival India. But neighbors and allies now fear nuclear-armed Pakistan is becoming more unstable and economic gains could be squandered.

Pakistani stocks edged to a life-high in early trade, as investors registered relief that the vote was less violent and fairer than feared, saying it was a first step towards stability.

A wave of sympathy helped Bhutto's Pakistan People's Party (PPP) win the most seats in the National Assembly in Monday's election, in which the allies of former army chief Musharraf, who seized power in a 1999 coup, suffered big losses.

But the PPP needs coalition partners and the president's camp is banking on persuading it to invite the pro-Musharraf Pakistan Muslim League (PML) to salvage his leadership.

Bhutto's widower Asif Ali Zardari, who took over as PPP leader after she was killed in December, appeared to take that lifeline away, saying the PML would not be welcome.

Zardari told the BBC's Urdu-language service on Tuesday that Musharraf had said he would quit if he no longer had the people's support, and vowed that the PPP would put the issue of the president's future before parliament.

Asked by the Wall Street Journal if he had contemplated resigning, Musharraf replied: "No, not yet. We have to move forward in a way that we bring about a stable democratic government to Pakistan."

He told the newspaper the next prime minister would run the government, but he was opposed to any move to reinstate judges he used emergency powers to replace before they could annul his re-election by the last parliament in October.

Nawaz Sharif, the prime minister Musharraf overthrew in 1999, told journalists in Lahore that the judges must be reinstated, and Musharraf had to realize he was no longer calling the shots.

"I think he should understand that things are now out of his control," said Sharif, whose party ran second in Monday's poll.

Sharif has made driving Musharraf from power his mission since returning from exile in November, a month after Bhutto.

The PPP wants Sharif to join the coalition along with an ethnic Pashtun party that kicked Islamist parties out of power in the North West Frontier Province where militants operate.

According to unofficial results for 261 seats, the PPP, Sharif's party and the Awami National Party (ANP) held a shade under the two-thirds they need to change the constitution or bring Musharraf down, but independents could join their banner.

Analysts warned ideological differences and past bad blood could still scupper an alliance between the PPP and Sharif, in which case, the PPP's door could re-open to Musharraf's friends.

The president's emissaries made little headway when they met Zardari late on Tuesday, according to officials.

Political paralysis has played havoc with management of the economy in the last six months.

Pakistanis have struggled with soaring fuel prices, shortages of basic foods and gas, and worsening power cuts, while investors fear more upheaval could puncture a booming stock market.

But the Karachi Stock Exchange main index has bucked a bearish trend across Asia to recover all losses suffered after Bhutto's murder. A 40 percent gain in 2007 made it one of Asia's best performers, and it has gained about 900 percent since 2000.

The rupee gained nearly 1 percent against the dollar in the last two days, having been bumping 6-year lows.

Musharraf's popularity disintegrated over the past year, especially after he imposed a stint of emergency rule in November, purging the judiciary and gagging the media.

Speaking during a visit to Ghana, President Bush noted Musharraf had fulfilled his promise to hold elections, and stressed the U.S. need for Pakistan as an ally.

"We've got interests in helping make sure there is no safe haven from which people can plot and plan attacks against the United States of America and Pakistan," he said.

In Washington, State Department spokesman Tom Casey said the U.S. administration hoped "whoever winds up in charge of the new government would be able to work with (Musharraf)."

Zardari and Sharif are due to meet on Thursday. Negotiations could last for days. But, if they agree, it would leave Musharraf with two choices, said analysts.

He could either quit or drag out political upheavals with a hostile parliament that would try to oust him on grounds he violated the constitution when he imposed emergency rule.

"My sixth sense is that he will leave," said Ijaz Shafi Gilani, chairman of pollsters Gallup Pakistan.