Mr Musharraf has been at the centre of a political crisis since early last year that has raised fears among the United States and its allies for the stability of the nuclear-armed Muslim country, which is also a hiding place for Al-Qaeda leaders.

The ruling coalition government, led by the party of assassinated former prime minister Benazir Bhutto, said last week it aimed to impeach the former army chief and firm US ally for years of misrule.

Speculation has been rife that Mr Musharraf, who seized power in a 1999 coup, would quit rather than face impeachment.

Politicians across the country have been calling on him to face a vote of confidence or be impeached. Members of Sindh province's assembly added their voices to the chorus of opposition on Wednesday.

The Daily Times newspaper cited an unidentified politician from a pro-Musharraf party as saying the president would announce a decision to quit on Independence Day on Thursday.

But Mr Musharraf's spokesman denied the report.

'Newspapers in Pakistan, I'm afraid, dream up things then start writing about them. There's no such thing,' said the spokesman, retired Major General Rashid Qureshi.

The prospect of a showdown is unnerving investors, with the rupee setting a new low of around 75.05/15 to the dollar and stocks hovering near two-year lows.

A crucial question is how the army, which has ruled for more than half the 61 years since the country's creation, will react, but coalition leaders said on Tuesday the army and its main security agency would not intervene to back their old boss.

Charge sheet
Prime Minister Yousaf Raza Gilani, a senior member of Bhutto's party, said the army chief chosen by Mr Musharraf to take over when he gave up command last year was highly professional and supported democracy.

Coalition officials hope the president, isolated since his allies were routed in February elections, resigns before he is impeached. But they are drawing up accusations against him which they say should be ready next week.

Analysts say it could take weeks before a vote in the bicameral parliament.

A prominent Musharraf ally said the president should at least respond to the charges before he considers stepping down.

'If he resigns now it will be taken that he ran away from a charge sheet,' said Mr Tariq Azim Khan, a deputy minister in the previous government.

The government does not have the two-thirds majority needed to impeach Mr Musharraf but says it is confident it will win the vote with what it calls a 'tidal wave' of opposition to him.

Several old allies have turned against the president.

Mr Musharraf has anchored Pakistan's backing for the US-led campaign against Islamist militancy since 2001. The new government has vowed to maintain support even though the policy is deeply unpopular with many Pakistanis.

The United States has urged the government to focus on a deteriorating economy and spreading militancy but has not commented on the impeachment, saying it is a Pakistani issue.

Newspapers have reported that US ambassador Anne Patterson has been trying to ensure Mr Musharraf is not prosecuted if he resigns. The US embassy has not commented.

Mr Musharraf's popularity began to evaporate last year when he clashed with the judiciary and imposed emergency rule to ensure another term. -- REUTERS