The NewsFuror

Thursday, November 8, 2007

Oil passes $98 on weaker dollar

Pumps in north-eastern China's Liaoning province
Analysts expect oil to break $100 a barrel
The ever-weakening dollar and worries about winter fuel supplies sent US oil prices to a peak at $98.62 a barrel.

But prices later fell back sharply after US crude inventory figures showed a smaller than expected weekly fall.

US light, sweet crude settled down 33 cents at $96.37 while Brent closed at $93.24, down from a high of $95.19.

In recent sessions, record levels have been followed by falls of at least $1, and analysts say that prices are still on their way to $100 a barrel.

The weaker dollar has been driving up oil prices as investors have been using the commodity as an alternative to holding dollars, and crude prices have also been lifted in recent days by bad weather hitting North Sea oil rigs.

$100 a barrel 'inevitable'

Oil prices have now risen by 60% this year and some analysts say that $100-a-barrel oil is inevitable.

A fuel storage tank in the US
Oil prices fell back after a smaller than expected drop in inventories

"We're going to get $100 before too long," said Kevin Norrish of Barclays Capital.

"I think we'll get there," said Dariusz Kowalczyk at CFC Seymour. "The factors that have been driving the recent trend are still in place."

A big fall in US crude inventories might have been enough to push the price over $100 a barrel, but in the event the figures from the Department of Energy showed a smaller than expected drop.

US crude oil inventories fell by 800,000 barrels over the past week to 311.9 million barrels.

Oil prices have still not reached a record high if inflation is taken into account.

Adjusting for inflation, US light crude's record peak of $101.70 came in 1980 against a backdrop of war between Iraq and Iran.

Gold prices

The dollar's current weakness has also seen prices of other commodities rise sharply, most notably gold, which is continuing near 27-year highs.

How China and India respond to the rising threats to their energy security will also affect the rest of the world
International Energy Agency

Gold prices have also been lifted by the higher cost of oil, as investors see it as a haven against the inflation risk caused by increased crude costs.

Gold rose a further $10.10 to close at $833.50 an ounce on Wednesday.

Separately on Wednesday, the International Energy Agency (IEA) warned that the rapid economic growth in China and India could have devastating consequences for the world's energy supply.

Calling on both countries to increase efforts to curb their demand for oil, petrol and natural gas, the IEA said the two countries would account for about 45% of the increase in global energy demand by 2030.

"How China and India respond to the rising threats to their energy security will also affect the rest of the world," said the Paris-based agency.

Pound breaks through $2.10 level

Pound coin

The UK pound has climbed past the $2.10 level against the US dollar, the highest it has been in 26 years.

At one point, the pound touched $2.1052, before paring gains to trade at $2.1042.

The weakness of the dollar has also seen the euro benefit, with the single European currency strengthening to record levels against the greenback.

Analysts said the dollar had weakened because of speculation that US interest rates would be cut in coming months.

The rally is being driven by dollar weakness as opposed to pound strength
James Hughes, CMC Markets

They also said it reflected fears that China may start offloading some of its huge dollar currency reserves in favour of other foreign currencies.

And predictions that the Bank of England's monetary currency committee may keep interest rates at 5.75% on Thursday have also favoured the pound.

'Diversify reserves'

The dollar and pound were last at similar levels in September 1981.

Earlier, the euro jumped to a new record against the dollar, as it moved to beyond $1.47.

Another currency performing strongly against the greenback is the Canadian dollar, which currently buys more of its US counterpart than at any time since 1950.

In early trading on Wednesday, the "loonie", as the Canadian currency is affectionately known, broke through the $1.10 mark.

James Hughes, an analyst at CMC Markets, said: "The rally is being driven by dollar weakness as opposed to pound strength."

He added: "Speculation that the Chinese government may further diversify its currency reserves is being seen as largely responsible for this move."

And further speculation that oil-exporting nations have been selling dollars earned from petroleum sales to buy more euros has also boosted European currencies.

'Caught by surprise'

The fall in the value of the dollar put pressure on global stock markets, with the Dow Jones index closing down more than 2.5% in New York.

The FTSE 100 also closed lower in London, with dollar-exposed firms such as British Airways and Royal Bank of Scotland being punished by investors.

Mr Hughes said: "The big move [in the dollar] has caught people by surprise and it has affected the US futures market, which is weighing on indexes in Europe and London."

Other analysts said a strong euro and sterling against the dollar would harm European firms' earnings.

"In some company reporting, we have seen the impact. BMW and paper companies have mentioned it in their reporting," said Bernd Meyer, a strategist at Deutsche Bank.

Summit to cut conflict gem trade

Diamond trade has been fuelling civil wars
Governments, mining and trading firms and NGOs are meeting in Brussels to discuss the trade in conflict diamonds.

These are rough, uncut gemstones used by rebel groups to fund wars against legitimate governments.

Proceeds from their sale prolonged recent civil wars in Angola, Ivory Coast, the Democratic Republic of Congo and Sierra Leone.

The event takes place annually as part of the Kimberley Process, a protocol set up in 2002 to eliminate the trade.

The EU has been leading the process this year, so 2007's meeting is taking place in Brussels.

Diamond rules

An estimated 80% of the world's rough diamonds are sold in Antwerp, just a few miles north of the Belgian capital.

The Kimberley Process was born out of a 2000 UN resolution that demanded every rough diamond had a certificate to ensure its legitimacy.

Two years later - in the South African mining town of Kimberley - governments, industry and pressure groups agreed to a verification scheme of the type the UN was looking for.

So began the Kimberley Process.

At its basis is a legal agreement that needs to be incorporated into the law of each nation that signs up.

Among the rules, members are only allowed to trade rough diamonds with other members, each shipment must have a certificate attached, and stones must be exported and imported in tamper-resistant containers.

Since its creation, 46 countries, as well as the 27 members of the EU, have signed up.

Success story

Since 2002, the number of states exporting conflict diamonds has reduced greatly.

The Kimberley Process says the Ivory Coast is the only country where rebel groups still control diamond-producing areas.

They now make up less than 0.2% of the world's production. That compares with 15% at the beginning of this decade.

There are two main reasons for the drop.

First, most of the diamond-producing nations that were at civil war are now no longer conflict zones.

So the rebel groups that were profiting from the stones have now disbanded.

But the Kimberley Process itself has helped too. Its members make up the vast majority of the market for rough diamonds.

Their traders can no longer buy rough stones without a Kimberley certificate. In theory, that means the market for conflict stones has gone away.

Criticisms remain

Pressure groups who are part of the process say there are still problems in other areas of the trade, though.

Smuggling is one. Diamonds lend themselves perfectly to it.

Export tariffs can vary between the various producing countries. So if a smuggler succeeds in taking a gem illegally from a high-tariff nation to another which might have low duties, and giving it all the documentation there, he can save lots of money on export duties.

Diamonds are also very portable and rarely, if ever, go down in value.

The expose of conflict diamonds by the pressure group Global Witness in the late 1990s led in part to the setting-up of the Kimberley Process.

The London-based charity says the illicit trade in diamonds - and smuggling in particular - is now a significant issue.

"This is all happening in parallel to the Kimberley Process, sometimes between two countries who have signed up to it," says Global Witness campaigner Annie Dunnebacke.

"Any illicit trade undermines it. Since the Kimberley Process is still the only safeguard against the terrible diamond wars that happened just a few years ago, this is a concern."

The industry welcomes the virtual elimination of in the trade in conflict diamonds, but denies that the problem of smuggling is growing.

Moreover, according to Cecilia Gardner, the General Counsel for the World Diamond Council, it's not up to mining firms, or the Kimberley Process to fight it.

"There are already robust anti-smuggling laws in place in every Kimberley Process nation with criminal sanctions against them," she said.

"These need to be enforced by governments. We feel the Kimberley Process portfolio is sufficient and we are working very hard to make sure the system works well."

The conference ends on Thursday.

Productivity of US workers grows

GM car worker
Higher productivity means less chance of inflation in the US
The productivity of workers in the US grew at the strongest rate for four years between July and September.

Hourly output per worker, excluding farms, grew at an annual rate of 4.9%, which was better than expected.

It is good news for the Federal Reserve's rate-setters, because it means the economy can keep growing without necessarily causing inflation.

The number of hours worked by employees shrank by 0.5% in the period, according to data from the Labor Department.

That figure was the sharpest decline since 2003.

Wage pressures eased, with unit labour costs dropping at an annual rate of 0.2%.

"It's a positive signal for growth and it also shows less inflationary pressure," said Michelle Meyer from Lehman Brothers in New York.

"It's very encouraging for the Fed," she added.

Confusion on London stock market

London Stock Exchange
Data problems have disrupted trading
Trading on the London stock market was thrown into confusion after technical problems resulted in misleading information being published.

In a highly unusual move, trading on the London Stock Exchange (LSE) was extended to 1800 GMT after terminals in the City displayed incorrect prices.

These showed the benchmark FTSE 100 closing up on Wednesday, even though it was sharply down for most of the day.

The LSE blamed the disruption on problems with "data dissemination".

Data issues

This resulted in incorrect figures for the FTSE 100 and for the performance of some individual company shares being displayed.

The LSE said it had experienced problems with "data feeds" at 1600 GMT, about half an hour before the market's normal close.

These "connectivity problems" had affected price information which providers such as Reuters and Bloomberg sell on to traders and other City professionals.

Revised figures after the extra's hour trading showed the FTSE 100 down 54.8 points at 6420.1, with shares of leading banks and mortgage lenders under continuing pressure.

The disruption to trading will be a serious embarrassment for the LSE, one of the world's largest stock market operators.

It recently acquired Italy's Borsa Italiana for £1.6bn, a deal which the LSE said would create Europe's largest market for trading shares.

GM reports record quarterly loss

Denali sports-utility vehicles stacked on the back lot of a GMC dealership
GM hopes its new products will boost its competitive position in the US
General Motors (GM) has reported a record quarterly loss of $39bn (£18.5bn), due almost entirely to a massive one-off accounting charge.

GM said it was following accounting guidelines with respect to deferred tax assets in three countries.

Excluding the charge, GM still posted a net $1.6bn loss for July to September, compared with a $147m loss for the same period a year earlier.

GM's chief financial officer told the BBC its performance was "inadequate".


Following news of the hefty loss, GM shares were down nearly 5% in late afternoon trading.

We have got to keep working very hard to improve
Fritz Henderson, GM chief financial officer

"That cannot be considered adequate even with the challenges we face," Fritz Henderson told BBC World's World Business Report.

"We've got to keep working very hard to improve, to launch our great products, improve the quality of our brands, which we are doing, and take cost out of the operations, which we are doing."

GM said it was taking the charge because it had accumulated billions of dollars in potential tax credits in the US, Canada and Germany.

The company decided that because of its losses, it could no longer count on earning enough money to use the credits before they expired.

GM recorded a net profit of $953m in the first six months of 2007 after losing more than $12bn in 2005 and 2006.

However, accounting rules would still allow GM to claim those credits if it bounced back to profitability and could use the amounts to offset future taxes.

The charge will not affect the company's cash flow as it undergoes a sweeping restructuring programme.

'Uncertain outlook'

US auto sales are on track for their lowest industry-wide total in almost a decade at about 16 million units.

Executives at Ford Motor and Chrysler, GM's principal US rivals, have suggested the market could slide further in 2008.

Mr Henderson said GM's goal was to move into "a more sustainable profit position" but would not speculate on how long that might take.

Strong sales in emerging markets, particularly Russia, were a positive trend for the company but weak demand in Germany remained a major concern, he added.

He forecast gloomier times ahead for the US mortgage market, which GM is exposed to through its residential mortgage and car insurance arm GMAC.

"We need to significantly restructure the business to staunch those losses and then frankly reassess where we go from here," he said of GMAC's future.

"But at this point I have to say that the outlook is uncertain."

Economic worries knock US markets

Traders on the New York Stock Exchange
The news from the trading floor is not improving
Stock markets in the US have fallen sharply as the cumulative effect of a weak dollar, soaring oil prices and the credit crisis again eroded confidence.

The benchmark Dow Jones index of leading shares tumbled 360.92 points, or 2.6%, on a day of fresh volatility.

Banking stocks were widely sold as fears over financial problems facing Wall Street showed no signs of abating.

Morgan Stanley said exposure to bad sub-prime related investments had reduced its profits by $2.5bn ($1.2bn).

Sub-prime liabilities on its balance sheet totalled $6bn at the end of last month while the decline in value of these assets had wiped $3.7bn off sales in the past two months.

"It is expected that market conditions will continue to evolve and that the fair value of these exposures will frequently change and could further deteriorate," Morgan Stanley warned in a statement after the stock market had closed.

'Perfect storm'?

The slump in the US housing market and its knock-on effect on the banking sector is just one of several factors seen as dampening the US economy.

Oil prices are fast approaching $100 a barrel and are seen as being a real drag on economic growth in 2008.

Prices rose above $98 a barrel on Wednesday for the first time and although they later fell back to below $97, many analysts now believe the $100 mark will soon be breached.

Billboard for Morgan Stanley
Morgan Stanley is the latest bank to write down its sub-prime assets

Meanwhile, the dollar continued its steady decline against other major currencies after a Chinese government official said it might build up its euro-denominated foreign exchange holdings.

The vast majority of China's holdings are currently in dollars.

The Dow Jones closed trading at 13,300.02 while the Standard & Poor's index fell 2.9% to 1,475.62, its largest single daily drop since August.

Mortgage woes

Banking stocks were under the cosh as the fallout from the resignation of two of Wall Street's leading bosses in the past week still dominated the market.

Morgan Stanley's shares fell 6% while shares in Citigroup, whose chief executive Chuck Prince quit on Sunday after disclosing heavy losses related to bad mortgage loans, fell 5%.

Leading mortgage lender Washington Mutual said on Wednesday that the housing market was likely to remain depressed throughout next year.

"The soft landing we were anticipating quickly transitioned to a severe downturn," chief executive Kerry Killinger said.

The sense of unease was heightened by the decision by the attorney general of New York to issue subpoenas to leading mortgage financiers Fannie Mae and Freddie Mac.

The subpoenas were issued as part of his investigation into claims of a conspiracy to inflate the appraisal values of homes.

"It seems that every time there is any significant new headline that relates to the mortgage mess, that gets people spooked and the selling really starts to accelerate," said Eric Kuby, chief investment officer at North Star Investment Management.

Father of Osmonds performers dies

George Osmond
George Osmond helped launch the musical careers of his children
George Osmond, father of singing siblings The Osmonds, has died aged 90.

He was an early manager of the group and helped launch the careers of six of his eight sons, including Donny and his daughter, Marie.

Osmond died of natural causes at home in Provo, Utah, family spokesman Kevin Sasaki said.

Marie cancelled an appearance on US TV show Dancing With The Stars to fly to Utah with brother Donny to be with their family.

Wyoming-born George Osmond kicked off the family entertainment business by teaching barbershop-quartet harmonies to sons Alan, Wayne, Merrill and Jay, who began singing together at church functions and events in Utah.

TV debut

On a trip to Los Angeles in the early 1960s, the boys landed a job as Disneyland performers, leading to a TV debut on The Andy Williams Show.

Younger brother Donny joined the group a year later aged six and ultimately became its focal point.

Osmond gave up his insurance and property business in Utah to focus on managing his sons' career in California.

The Osmond family
The family members have had a total of 16 UK top 10 hits

The Osmonds released their debut album in 1970 and became chart-toppers with the single One Bad Apple (Don't Spoil the Whole Bunch).

Counting solo records, the Osmond family have released more than 142 records and sold more than 100 million copies in the last 50 years.

Their biggest hits in the UK were Love Me For A Reason and Crazy Horses, both released in the early 1970s, when the group would be mobbed by fans at public appearances.

From 1976 to 1979, Donny and Marie Osmond hosted the TV programme The Donny and Marie Show, which their older brothers helped produce.

In August 2007 the family reunited on stage for the first time in 20 years to mark the 50th anniversary of the family's first foray into showbusiness.

George Osmond is survived by nine children, 55 grandchildren and 48 great-grandchildren.

Mayor gets Sex and the City role

New York Mayor Michael Bloomberg
It is not clear what Mayor Bloomberg will be doing in the film
New York Mayor Michael Bloomberg has landed a role in the film version of Sex and the City, starring actress Sarah Jessica Parker.

Bloomberg's spokesman, Stu Loeser, confirmed he would film an appearance at Bryant Park in Manhattan, but gave no other details about the part.

The movie - which began filming in September - reunites characters Carrie, Charlotte, Samantha and Miranda.

It is based on the hit US TV series, and is due out next year.

The show followed the life of New York columnist Carrie (Parker), and her three friends.

As well as Parker, all three original stars - Kim Cattrall, Kristin Davis and Cynthia Nixon - have all signed up for the film, along with Chris Noth who played Mr Big.

Speculation has been building around what the plot has in store for the four main characters.

Bloomberg is following in the footsteps of former New York Mayor Ed Koch. He appeared in a Sex and the City episode in 2001 as himself.

Doherty owns up to drug relapse

Pete Doherty last week
Doherty is said to be "filled with remorse" for his latest relapse
Singer Pete Doherty has admitted he has suffered a drug relapse and has pledged to seek further help in his attempts to tackle his heroin addiction.

"Peter sadly relapsed last week and is now looking to check himself back into a rehab clinic," said a spokesman for his record company, EMI.

"He realises that he has not only let himself down but has let down those who trusted and encouraged his efforts."

The statement follows newspaper photos of Doherty apparently injecting heroin.

The mobile phone images, published in The Sun, were said to have been taken on Friday.

"Peter would like to apologise to the medical staff, fans and well-wishers who have helped and encouraged his progress," the statement reads.

Peter is filled with remorse for what he describes today as 'a stupid, stupid action'
EMI statement

"His ongoing rehabilitation was a source of such pride to him that Peter and those closest to him thought that he was close to winning his personal battle with the drug.

"He is filled with remorse for what he describes today as 'a stupid, stupid action for which I feel only shame'."

Last month the 28-year-old - due to start a UK arena tour with his Babyshambles band on 22 November - was handed a suspended prison term for drugs and motoring offences.

Doherty's relapse followed his appearance last week at the MTV Europe Music Awards in Munich, where organisers praised his punctuality and professionalism.

In an interview with NME magazine published this week, he admitted he had found staying off drugs "hard work".

Prince sites face legal threats

Prince recently performed for 21 nights at London's O2 arena
Prince has threatened to take legal action against fan-run websites unless they remove photographs of him.

A fan group, Prince Fans United, claims the star is trying to "stifle all critical commentary" and he is in "violation of the freedom of speech".

But Web Sheriff, the UK firm the pop star has hired to enforce the ban, said it was "not an attack on fans".

In September, Prince took action against video sharing website YouTube to remove clips of his London concerts.

'Voluntary and unpaid'

He is now hoping to have any album covers, images of him in concert and any lyrics removed.

"The dispute, in so far as there is one, is related to the use of photographs and images of Prince, many of which are Prince's copyright," said John Giacobbi, managing director of Web Sheriff.

"At the end of the day it's the artist's decision as to what they're happy to let people have," he added.

However, a spokesman for Prince Fans United, who asked to remain anonymous for legal reasons, denied the sites had done anything wrong.

The websites are run by fans, therefore it is an attack on fans
Prince Fans United spokesman

"We respect copyright laws always. However about 80% of the images on the websites are not copyright owned by Prince," he said.

"For example there are photos taken of him in concert where the copyright remains with the photographer."

Tight security

Prince Fans United was formed by housequake.com, Princefams.com and Prince.org, to fight back.

The spokesman said all the websites were run on a "voluntary unpaid basis" and none of the sites were a "commercial venue".

He added: "The websites are run by fans, therefore it is an attack on fans."

During Prince's recent residency at London's O2 arena, fans were banned from taking photographs or video footage on their mobile phones.

Prince in 1996
Prince publicly protested against his record company in the 1990s

Security at the concerts was tight with people's bags being searched for cameras.

But clips of the singer still appeared online.

Prince is well-known for being protective of his image.

In 1990 he fell out with his record company, Warner Brothers, over the ownership of his master tapes.

He went on to change his name and famously wrote the word "slave" on his cheek during public appearances.

More recently, in the UK his most recent album, Planet Earth, was given away free with a newspaper.

Several websites offered copies of the album for download as soon as the paper went on sale - despite the album being sold commercially in the rest of the world.

UN official expelled from Darfur

Refugees in the camp of Otash, on the outskirts of Nyala
More than two million civilians are estimated to live in refugee camps
Authorities in Sudan's South Darfur province have expelled the head of the United Nation's humanitarian operations, Wael al-Haj Ibrahim.

He was accused of unspecified rule violations. The United Nations has deplored the expulsion.

A UN spokeswoman expressed concern about the potential ramifications of this decision.

The UN plays an important role in co-ordinating assistance to up to 1m internally displaced persons.

Mr Ibrahim, a Canadian national, head of the Office for the Coordination of Humanitarian Affairs (OCHA) in Nyala, South Darfur, "had been forced to leave" by provincial authorities, OCHA spokeswoman Stephanie Bunker said.

She said South Darfur's Governor, Ali Mahmood Mohammed, asked Mr Ibrahim in a letter to leave because "he was not complying with the rules of humanitarian action."

The OCHA said the expulsion violated the letter and spirit of the agreement it had with the authorities.

Growing tensions

Mr Ibrahim's expulsion comes against a background of rising tension between humanitarian organisations and the authorities in Darfur, the BBC's Martin Plaut reports.


Late last month the UN witnessed troops and police rounding up refugees from a camp on the outskirts of Nyala.

Around 1,000 refugees were forced onto trucks at gunpoint and driven into the night.

According to a human rights organisation, the Aegis Trust, they were dumped on the outskirts of the city and have ended up living with friends and relatives.

Mr Ibrahim - as the head of the UN's humanitarian operations in Nyala - objected to the forced relocation.

But most have nowhere to go, and fear attacks if they leave the relative security of the camps, our correspondents says.

Few have decided to accept the offer of voluntary return and the Aegis trust is describing attempts to close the camps as a further ethnic cleansing of Darfur's African population, he adds.

Some 200,000 people are estimated to have died and more than two million displaced during the four-year war which has ravaged Darfur.

Georgia under state of emergency

Georgian riot police in Tbilisi - 7/11/2007
Riot police broke up opposition protests in central Tbilisi
Georgia's President Mikhail Saakashvili has declared a 15-day, nationwide state of emergency after police broke up a sixth day of opposition protests.

Demonstrations have been banned, only state television can broadcast news.

In a TV address, Prime Minister Zurab Nogaideli said a coup attempt had been made and Mr Saakashvili said "Russian special services" were behind unrest.

The president has rejected the protesters' accusations of corruption and says he will not quit.

The prime minister initially announced a state of emergency in the capital Tbilisi for 48 hours, but that was later extended to the whole country for 15 days.

Earlier in the day, police had used water cannon, tear gas and batons to break up opposition protests outside parliament.

Officials said 500 people had sought medical treatment, most to be treated for the effects of tear gas.

The White House said it was "concerned" by the unrest in Georgia, the AFP news agency reported.

"We are concerned about the reports from Georgia. We urge that any protests be peaceful and that both sides refrain from violence," US national security council spokesman Gordon Johndroe said.

Diplomatic expulsions

Speaking before he declared a state of emergency, Mr Saakashvili said his country faced "a very serious threat of unrest".

"High ranking officials in Russian special services are behind this," he said, adding that he had evidence.

He said several Russian diplomats would be expelled from Georgia for engaging in "espionage".

Earlier he had recalled Georgia's ambassador to Moscow for "consultations".

Moscow has called his allegations irresponsible and said any expulsion of Russian diplomats would be followed by an "adequate response".

The foreign ministry said the remarks were "anti-Russian hysteria".

Mikhail Saakashvili
Mr Saakashvili has rejected the allegations of corruption

Police used tear gas and water cannon after several thousand protesters tried to occupy Rustaveli Avenue - Tbilisi's main thoroughfare.

Imedi TV, which has broadcast statements by opposition leaders, stopped broadcasting on Wednesday, after riot police entered its premises.

The protesters say the police response demonstrates Mr Saakashvili's authoritarian tendencies but police said they had to unblock the capital's main road.

Opposition supporters have been gathering outside parliament every day since Friday, when 50,000 people attended the largest street protest seen since the 2003 "Rose Revolution" that brought pro-Western Mr Saakashvili to power.

The protesters accuse him of corruption and of not doing enough to tackle poverty.

They are calling for the president's resignation and a fresh election.

Many of the protesters back the president's former ally, Irakli Okruashvili, who was arrested last month shortly after he said Mr Saakashvili had plotted to kill a top businessman.

He was later released on a multimillion-dollar bail and went to Germany. The government says Mr Okruashvili's accusations are "false and baseless".

Is Bhutto up for confrontation?

Benazir Bhutto
Benazir Bhutto holds the key to mass protest

Pakistani opposition leader Benazir Bhutto seems to have launched a multi-pronged attack on military ruler President Pervez Musharraf.

Her threat to call mass protests unless emergency rule is called off has left both the government and opposition in shock.

Until recently, Ms Bhutto was engaged in power-sharing talks with the government, supported by Western powers, including the United States.

In doing so, she also helped Gen Musharraf retain a semblance of legitimacy after he first tried to sack the country's chief justice last March.

The PPP appears to have decided to flex its muscles and take the long-awaited plunge to bring about regime change

That sparked countrywide protests led by lawyers and supported by all the opposition groups - except Ms Bhutto's Pakistan People's Party (PPP).

But she has now given Gen Musharraf only two days to lift the emergency or face protests, and warned him to keep promises to quit as army chief and hold elections.

Will Ms Bhutto's ultimatum throw this high-stakes game off track? And if so, what are her chances of success in a situation in which the government appears determined to quell all dissent?

'Go for the kill'

There are two schools of thought on what her strategy is and what she is trying to achieve through these actions.

A lawyer is detained by police in Lahore, 5/11/07
Thousands of lawyers and others have been arrested

The first view is that she has decided to "go for the kill".

Adherents of this view believe that Gen Musharraf is already facing mounting criticism from most Western capitals that are reviewing their economic and diplomatic ties with the country.

With Ms Bhutto adopting the course of confrontation, Gen Musharraf stands to lose the only credible political ally that the international community believes could be instrumental in the country's crucial fight against Islamic militants.

They believe that even a small turnout at Friday's public meeting in Rawalpindi will set the tone for united protests which have so far evaded Pakistan's political forces.

The rest of the opposition would either be swept off its feet, or have no option but to throw its weight behind the PPP's campaign, they say.

According to these observers, Gen Musharraf would be forced to backtrack on his recent moves if the protest movement catches on.

There would also be the likelihood of ousted Chief Justice Iftikhar Chaudhry emerging as one of its main leaders, which neither President Musharraf nor Ms Bhutto wants.

Regime change

The second view is that Ms Bhutto's move is aimed at driving a wedge between Gen Musharraf, and the ruling PML-Q party, his ally of eight years.

It has provided Gen Musharraf with a political face and an engineered parliamentary majority that enabled him to sell Pakistan as a democracy to his Western allies.

Ms Bhutto is now threatening to take the fight for parliament to the PML-Q's home turf in the Punjab, the adherents of this view say.

They believe the PPP also has substantial support in the Punjab, and unlike other opposition parties, it will be able to mobilise its workers despite the fears of a crackdown by the administration.

As one analyst put it, PPP workers are currently confident the Americans are behind them, and that Prime Minister House in Islamabad is the prize of this war.

Either way, the PPP appears to have decided to flex its muscles and take the long-awaited plunge to bring about regime change.

Ms Bhutto has already said that even if she is arrested, the campaign will go on until her demands are met.

Whether Gen Musharraf will survive this battle is anybody's guess, but the predominant opinion is that ousting him would not suit the PPP, which has so far focused on rolling back the army's involvement in politics in phases rather than with a single blow.

How Ms Bhutto charts a middle course that would lead to free and fair elections without harming the position of Gen Musharraf remains to be seen.

The question also remains whether Gen Musharraf would be willing to see the pliant and subordinate ruling party replaced by Ms Bhutto's resurgent and assertive PPP as manager of the country's political affairs.

Bush urges Musharraf on election

Anti-Musharraf protest in Islamabad, 7 November 2007
Pakistan has seen protests despite widespread detentions
US President George W Bush has told Pakistani leader Pervez Musharraf to give up his army post and hold elections soon in a "frank" phone call.

Mr Bush said he told Gen Musharraf it was not right to continue as both president and head of the military.

But he also noted that Gen Musharraf had been an "indispensable ally".

Pakistan's former Prime Minister Benazir Bhutto has called for a rally on Friday against the state of emergency imposed by Gen Musharraf.

However, another former Prime Minister, Nawaz Sharif, told the BBC that Ms Bhutto must also demand the reinstatement of the chief justice and other judges if the opposition is to unite.

Mr Bush spoke by phone to President Musharraf for 20 minutes.

"My message was that we believe strongly in elections and that you ought to have elections soon and you need to take off your uniform," Mr Bush told reporters.

"You can't be the president and the head of the military at the same time, so I had a very frank discussion with him."


The US Deputy Secretary of State, John Negroponte, told Congress that Mr Bush had spoken of Gen Musharraf as an important ally.

"No country has done more in terms of inflicting damage and punishment on the Taleban and the al-Qaeda since 9/11.... Their record is quite impressive."

Benazir Bhutto
Benazir Bhutto wants elections to be held on schedule

But, he warned, "the longer the situation goes on in its present form, the more difficult it's going to become".

In Pakistan, Ms Bhutto has issued what correspondents say is an ultimatum to President Musharraf to end emergency rule.

She repeated plans for a rally on Friday, despite an official ban, and called for a "long march" next week unless Gen Musharraf changed course.

She insisted that he restore the constitution, hold elections and resign as head of the army, and is demanding the release of lawyers, judges and activists detained in the last few days.

Gen Musharraf imposed emergency rule on Saturday after months of unrest.

The authorities have warned that police will not allow Friday's demonstration in Rawalpindi, the country's main garrison town, to go ahead.

The city's mayor, Javed Akhlas, said: "We will ensure that they don't violate the ban on rallies, and if they do it, the government will take action according to the law."

He told the Associated Press there was a "strong threat" of another suicide bomb attack against Ms Bhutto, who survived an assassination attempt in Karachi on 18 October that killed more than 140 people.

Until now, protests across the country have been limited in scale, with Ms Bhutto refraining from urging supporters of her Pakistan People's Party (PPP) - the country's leading political group - onto the streets.

But correspondents say a huge popular rally could raise the stakes dramatically in the country's political crisis.

Emergency 'to end'

President Musharraf
General Musharraf faces more protests, the opposition says

Ms Bhutto was speaking after meeting other opposition groups in Islamabad - though some significant players were missing.

The important MMA (United Council of Action) - an alliance of Islamic parties - and the PML-N party of former Prime Minister Nawaz Sharif were not there.

Nor was the Movement for Justice Party of former cricket star Imran Khan.

Mr Khan was one of several leading politicians to be put under house arrest following the decree.

A top official from President Musharraf's ruling party has said emergency measures might come to an end in "two to three weeks".