Bhutto death dims U.S. hopes for democratic Pakistan

By Paul Eckert, Asia Correspondent - Analysis

WASHINGTON (Reuters) - The killing of Benazir Bhutto sends the United States back to square one in its search for a Pakistan that is a stable, democratic partner in a fight against Islamic extremism, analysts said on Thursday.

Possible consequences of the assassination range from widespread street rioting by her followers to the nightmare scenario for Washington of Pakistan eventually becoming a nuclear-armed, unstable Islamic state.

Financial investors, who already factor in Pakistan's considerable political risk, said the killing itself was not surprising but that continuing instability would boost the risk.

Stephen Cohen of the Brookings Institution called Bhutto's death a "blow to the idea of a liberal, moderate Pakistan" that made him fear for that country.

"Its further decay will affect all of its neighbours, Europe, and the United States in unpredictable and unpleasant ways," the South Asia expert wrote in an essay.

"It is probably too late for the United States to do much either: we placed all of our bets on (President Pervez) Musharraf, ignoring Benazir's pleas for some contact or recognition until a few months ago," Cohen added.

The United States invested great energy and political capital to secure the return of the 54-year-old exiled former prime minister to Pakistan in October. It convinced Musharraf to give up his role as military leader and accept elections and a power-sharing arrangement with her.

Now, Washington faces "a disaster on every account," from dimmed hopes of a democratic transition to the risk of more attacks by emboldened radicals, said Frederic Grare, a South Asia expert at the Carnegie Endowment for International Peace.