Militants call ceasefire in Pakistan's Swat valley

Militants seeking to impose a harsh form of Islamic law began fighting security forces in Swat in late 2007 and now control the scenic valley, which was until recently one of Pakistan's most popular tourist destinations.

Last year, the authorities released radical Muslim cleric Maulana Sufi Mohammad, who led a revolt in Swat in the 1990s, in a bid to bring peace back to the valley but the fighting continued and forced tens of thousands of people to flee.

"We're announcing ceasefire as a goodwill gesture for the ongoing talks between Maulana Sufi Mohammad and the government," said Muslim Khan, a spokesman for the militants.

On Saturday, the militants freed a Chinese man held hostage for more than five months, in a move Pakistani officials saw as a act of good faith.

In another effort to heal wounds, President Asif Ali Zardari ordered on Sunday compensation to be paid to people affected by the violence in Pakistan's semi-autonomous tribal lands and insurgency-hit districts of North West Frontier Province.

Religious conservatives in Swat have long fought for sharia to replace the state's secular laws, which came into force after the former princely state was absorbed into the Pakistani federation in 1969.

Sufi Mohammad later led thousands of fighters across to Afghanistan to support the Taliban militia when it came under attack from U.S.-backed forces in late 2001.

Arrested when he returned, Sufi Mohammad's son-in-law Maulana Fazlullah took up the cause. He led another revolt in Swat in late 2007, just months after Pakistani commandos stormed the Red Mosque in Islamabad to put down an armed movement also seeking to impose strict sharia law in Pakistan.

Fazlullah brought his faction under the umbrella of the Pakistani Taliban, headed by Baitullah Mehsud, a militant commander based in the tribal region of South Waziristan.

(Reporting by Junaid Khan and Kamran Haider; Writing by Simon Cameron-Moore; Editing by Katie Nguyen)