Bhutto sees deal with Musharraf to avert walkout

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LONDON, Oct 4 (Reuters) Pakistan's former Prime Minister Benazir Bhutto, in a dramatic volte-face, pulled back from a threatened mass walkout from parliament and voiced hope today of a breakthrough deal with President Pervez Musharraf.

A day after declaring that talks with Musharraf had ''totally stalled'', Bhutto told reporters in London she was now optimistic of an agreement with Pakistan's military leader on a transition towards democracy.

Such a deal, she said, would avert the threat of a mass resignation by her Pakistan Peoples Party (PPP) from parliament -- an action which would have undermined the credibility of Musharraf's expected re-election by lawmakers on Saturday.

''We are optimistic today, but I cannot say everything is finalised,'' Bhutto, who has spent the last eight years in self-exile, said after a two-day PPP meeting in a small terraced house in London.

She added that she was still waiting to see the text of a national reconciliation bill which would spell out the understandings reached with Musharraf in ''hectic negotiations and discussions'' overnight.

AMNESTY BILL The bill is designed to address a key Bhutto demand by removing the threat of prosecution against her and other former politicians and government officials.

''It is an across-the-board bill for all political parties,'' said Bhutto, who denies longstanding corruption charges against her in connection with her two terms as prime minister.

Bhutto, 54, plans to fly back to Pakistan on October 18 to contest a parliamentary election due by mid-January. ''We expect there will be no obstacle in the path of my return,'' she said.

Musharraf, facing an al Qaeda resurgence in Pakistan's tribal regions and battling to restore his popularity after a costly, failed bid to remove the country's top judge, has been talking to Bhutto for months about a power-sharing deal.

That would be welcomed by the United States, which sees the head of the world's only nuclear-armed Islamic state as a key ally in its war on terrorism.

But some sticking points remain.

Musharraf has yet to remove a bar on anyone serving a third term as prime minister, which would disqualify Bhutto. And she wants him to give up his sweeping powers to dissolve parliament -- something she said would be addressed in a ''stage two'' of negotiations.

Musharraf has said he will step down as head of the military before being sworn in next month for a new presidential term.

While Bhutto said this resolved her party's concerns about Musharraf's ''uniformed presidency'', she said her members of parliament would not vote for him on Saturday. ''We will either contest the (presidential) election or we will abstain from the voting.'' The PPP does not have the numbers, however, to stop Musharraf being re-elected.

Bhutto was due to fly home to Dubai later today. She said her parliamentary party would hold meetings in Pakistan tomorrow to decide its next moves.

REUTERS AM MIR KP2132

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