Pakistan's Supreme Court ruled on Tuesday that popular former prime minister Nawaz Sharif and his politician brother can contest elections, removing a cause of political uncertainty in recent months.

Two-time prime minister Sharif, who polls show is Pakistan's most popular politician, was earlier barred from contesting polls because of an old conviction he says was politically motivated.

Their lawyer, Ashtar Ausaf, told reporters outside the Supreme Court that earlier court rulings that in effect barred the brothers from elections had been set aside.

Sharif said the ruling showed the country was heading in the right direction.

"This is a decision welcomed by the entire nation," Sharif told reporters in the eastern city of Lahore. "Today an independent judiciary is giving independent decisions."    

He said his party, which came second to President Asif Ali Zardari's party in a February 2008 general election, would decide if and when he would contest a by-election.

Both brothers were unable to contest the 2008 election, although Shahbaz did later win a by-election for a provincial assembly seat in Punjab. He later became chief minister of the country's most prosperous and politically important province.

But in February a court nullified Shahbaz Sharif's by-election victory, and upheld the election bar on Nawaz Sharif, plunging the country into political crisis.

The crisis was defused in March when Zardari gave in to an opposition demand, championed by the Sharifs, for the reinstatement of the country's top judge, who had been dismissed by former president Pervez Musharraf in late 2007, and Shahbaz Sharif was restored as Punjab's chief minister.

Despite that, the question of the Sharifs' eligibility for elections has been a factor contributing to political uncertainty when the United States and other Western allies want to see the government fully focus on the battle against militancy.

Pakistani stocks ended flat as investors stayed on the sidelines ahead of the court decision, ending 0.05 percent, or 3.32 points, higher at 7,176.89.

The court decision came after the market had closed but dealers said investors were likely to react positively on Wednesday as a factor contributing to political uncertainty had been removed.

Analysts say Nawaz Sharif has long had his eye on becoming prime minister again but in order to do that parliament will have to lift a ban on former prime ministers serving a third term. The next general election is not due until 2013. - Reuters