Pakistan's President Pervez Musharraf, under mounting pressure to resign, called on Thursday for political stability and reconciliation to tackle economic and security problems.

Musharraf, speaking in an televised Independence Day address, did not refer to a plan to impeach him drawn up by a coalition government led by the party of assassinated former Prime Minister Benazir Bhutto.

In his first public comments since the coalition announced its impeachment plan last week, the former army chief and firm US ally also did not refer to the calls for him to step down.

"If we want to put our economy on the right track and fight terrorism then we need political stability. Unless we bring political stability, I think we can't fight them properly," Musharraf said.

Musharraf has been at the centre of a political crisis since last year that has heightened concerns in the United States and among its allies about the stability of Pakistan, a nuclear-armed Muslim state that is also a hiding place for Al Qaeda leaders.

Speculation has been rife that Musharraf would quit rather than face impeachment, though his spokesman has denied that.

The uncertainty is unnerving investors, with the rupee setting a new low of around 75.05/15 to the dollar on Wednesday and stocks hovering near two-year lows. Referring to the rupee, Musharraf said the flight of capital had to be stopped.

Financial markets were closed on Thursday.

Musharraf speaking just after midnight, when Pakistan marked the anniversary of its creation in 1947 upon the partition of British-ruled India, said differences should be buried.

"Political stability, in my view, can only be brought through a reconciliation approach as opposed to confrontation," he said.

But Musharraf's appeal would appear unlikely to check what coalition leaders call a "tidal wave" of opposition to him. Hours after Musharraf spoke, Prime Minister Yousaf Raza Gilani, a senior leader of Bhutto's party, said in his Independence Day address his government believed in reconciliation between political parties.

Gilani, who heads a coalition of parties opposed to Musharraf, formed after a February general election, did not refer to Musharraf or respond directly to his appeal. But in a veiled reference to Musharraf, who seized power in a 1999 coup, Gilani said: "The era of repression is over forever. Dictatorship has become a tale of the past."    

Musharraf's popularity began to evaporate last year when he clashed with the judiciary and imposed a brief period of emergency rule to ensure another term.

Gilani also spoke about the campaign against militancy, saying the problem had to be faced. "The war against extremism and terrorism is a war for our own survival," he said.

Underscoring the the threat, shortly before noisy Independence Day celebrations began, a suicide bomb attack on police killed seven people in the eastern city of Lahore.

Hundreds of people, including many members of the security forces have been killed in a wave of attacks since last year. As the pressure mounts on Musharraf, with a growing number of politicians, including some old allies, calling on him to go, a crucial question is how the army will react.

Coalition leaders said on Tuesday the army, which has ruled for more than half the country's history, would not intervene to back its old boss. - Reuters