By Zeeshan Haider
ISLAMABAD (Reuters) - Pakistan's opposition electionwinners were due to step up efforts to forge a coalition onFriday, raising the prospect of a government intent on forcingU.S. ally President Pervez Musharraf from power.
Leaders of the two parties that won the election, thePakistan People's Party (PPP) and the Pakistan Muslim League(Nawaz), or PML (N), vowed on Thursday to work together to forma new government but said they still had details to work out.
The main party that backs the unpopular Musharraf was dealta stunning defeat in Monday's general elections leaving thepresident, who has been one of Washington's top Muslim alliesagainst al Qaeda, vulnerable to a hostile parliament.
Nawaz Sharif, the prime minister Musharraf overthrew in1999 and whose PML (N) came second in the vote, has demandedthe unpopular president steps down.
But since the election, Musharraf has said he was not readyto resign.
U.S. President George W. Bush's administration has urgedthe next government to work with Musharraf and says Washingtonneeds Pakistan -- which borders Afghanistan where U.S. and NATOforces are fighting Islamist militants -- as an ally.
Sharif met Asif Ali Zardari, Bhutto's widower and leader ofher PPP since her murder on December 27, in Islamabad onThursday evening for their first face-to-face talks since theelection.
Sharif later told a news conference the two parties wouldwork together to form a government. Zardari, whose party wonthe most seats in the election, said he wanted a broadgovernment but one excluding the main party that backsMusharraf.
He said the PPP and Sharif's party would "stay together"but they had lots of details to work out.
"We have a lot of modalities to cover. We have a lot ofground to cover. Governance is a serious business and we can'tcover all issues in a two-hour long meeting," he said.
"We will be meeting off and on. In principle, we haveagreed to stay together," he said.
Zardari was due to meet his party's newly elected membersfor consultations in Islamabad on Friday.
SHARE MARKET SENTIMENT POSITIVE
Pakistani stocks fell in early trade as investors bookedgains at higher levels ahead of the weekend following a 4.3percent rise in the KSE-index since the peaceful elections.
However, dealers said sentiment was still positive andinvestors were looking forward to a new coalition.
The KSE-100 is the only share market in Asia to have gainedthis year, up 6.3 percent. Its gains over the past 12 monthsare ranked behind only China and Indonesia, though manyinvestors still consider it a difficult and illiquid market.
The index set a life high at 15,034.31 on Thursday and hasrisen about 900 percent since 2000.
Analysts say the centre-left PPP and Sharif's centre-rightPakistan Muslim League (Nawaz) agree on little ideologicallyand some have doubted they could form a coalition.
But if they do team up, Musharraf could either quit or dragnuclear-armed Pakistan through more upheaval as parliamenttries to oust him on grounds he violated the constitution whenhe imposed the emergency, they said.
(Writing by Robert Birsel; Editing by Sanjeev Miglani)
(To read more about the Pakistan election double click onand visit the Reuters blog "Pakistan: Now or Never?" athttp://blogs.reuters.com/pakistan/)