Nawaz Sharif, who heads the second-biggest party in the coalition, announced on Monday his members were quitting the cabinet after failing to reach agreement to reinstate judges dismissed late last year by President Pervez Musharraf.

A four-party coalition led by the Pakistan People's Party (PPP) of former prime minister Benazir Bhutto was formed after an election in February that resulted in defeat for former army chief Musharraf's allies.

The alliance between the PPP and Sharif's party raised hopes for a stable civilian government in a country ruled by generals for more than half its history since its independence in 1947.

Nine ministers from Sharif's party, including Finance Minister Ishaq Dar, handed in their resignations on Tuesday but Prime Minister Gilani declined to accept them.

"Let's make a last-minute effort, so that this issue is somehow resolved," Gilani told Sharif's aides in comments telecast by state-run Pakistan Television.

Gilani wanted to wait for Asif Ali Zardari, the widower of Benazir Bhutto, who now leads the PPP, and was due to return to Pakistan from Britain late on Tuesday.

Zardari says he is committed to restoring the judges but wants to link it to constitutional changes whereas as Sharif wants the judges reinstated without conditions.

Sharif's promise that his party, the Pakistan Muslim League (Nawaz), or PML-N, would still support the government while no longer being part of it, provided little solace for a nation tired of turmoil.

"I voted in the hope that something good will happen but I don't see that," said Nighat Anis, a teacher at a school on the outskirts of the capital, Islamabad. "I'm very upset, really very upset. Sometimes I think I should leave the country."

Western allies in the campaign against terrorism dread more instability in nuclear-armed Pakistan after the turbulence that began in March last year when Musharraf tried to dismiss the country's top judge, touching off protests.

HOPES DASHED

As part of his efforts to secure another term as president, Musharraf fired about 60 judges seen as hostile to him in November, after he imposed a brief state of emergency.

If they are restored, the judges could help Sharif, the prime minister Musharraf ousted when he seized power in 1999, drive his usurper from power.

Critics say the fight to control surging inflation, and counter Islamist militancy has suffered as a result of the coalition's preoccupation with the fate of the judges.

The rupee has fallen 10 per cent this year as the brewing political crisis has undermined a currency under pressure from a surging oil import bill and fiscal deficit.

The rupee closed at 67.80/68.50 to the dollar on Tuesday, off Friday's all-time closing low of 69.40/50, thanks in part to stiff warnings against speculation by the central bank.

The stock market closed 1.79 per cent stronger, still 7.7 per cent off its life-high on April 21.

A law student in Karachi, Zain Korai, said the whole country was depressed by the prospect of the PPP and PML-N becoming adversaries again.

"For the first time in our history we felt that change for the better was happening in politics. But I'm sorry to say, nothing has changed."

The split in the coalition, analysts say, would be welcomed by US ally Musharraf, and reinforce a perception that Zardari was in league with the unpopular president.