LATEST: Gunfire continues to be heard from both hotels. Israeli embassy says 10-20 nationals among hostages. Indian PM currently in Mumbai.

MUMBAI - BLACK-CLAD Indian commandos raided two luxury hotels to try to free hostages on Thursday, and explosions and gunshots shook India's financial capital a day after suspected Muslim militants killed over 125 people and injured more than 300.

A senior Indian military official said that the militants who staged the attacks came from Pakistan.

A top Indian general said about 10 to 12 gunmen remain holed up inside the two hotels and a Jewish centre. Major-General R. K. Huda told New Delhi Television that the rest of the gunmen appeared to have been killed or captured.

Rescue efforts continued throughout the day amid sporadic gunfire, with some hostages escaping and others rescued by police.

Several bodies were carried out of the five-star Taj Mahal Palace and Tower hotel, one of 10 sites seized by gunmen on Wednesday night.

More than 300 were also wounded in the highly coordinated attacks by bands of gunmen armed with assault rifles, hand grenades and explosives.

Flames burst from the hotel's top floors and dome shortly after the attack began Wednesday night, and erupted again after commandos raided the building on Thursday.

After dusk on Thursday, the soldiers ushered several dozen captives out of the Oberoi hotel, another Mumbai landmark.

One of the freed hostages who did not give his name told reporters he had seen many bodies inside the hotel. He refused to give more details, saying he had promised police not to discuss the rescue while it was ongoing.

The Maharashtra state home ministry said 45 captives had been freed from the Oberoi and 35 were still trapped inside.

Police said they were going slowly to protect the captives.

'The safety of the people trapped is very important,' said A. N. Roy, a senior police officer. 'It will take time but it will be completed successfully,' he said.

Among the dead were at least one Australian, a Japanese and a British national, said Pradeep Indulkar, a senior government official of Maharashtra state, whose capital is Mumbai. An Italian and a German were also killed, according to their foreign ministries.

Police said 125 people were killed and 314 injured. Officials said eight militants were also killed.

The most high-profile target was the Taj, a landmark of Mumbai luxury since 1903, and a favorite watering hole of the city's elite.

Soldiers outside the hotel said the operation would take a long time as forces were moving slowly, from room to room, looking for gunmen and traps.

In the afternoon, bodies and hostages slowly emerged from the building. At least three bodies, covered in white cloth, were wheeled out.

About a dozen people, including foreigners, were also evacuated from the hotel and whisked into a waiting ambulance. Several of them carried small pieces of luggage. One older man was carried into the ambulance by police.

The attackers, dressed in black shirts and jeans, had stormed into the hotel at about 9.45pm Wednesday (12.15am Thursday Singapore time) and opened fire indiscriminately.

'I was in the main lobby and there was all of a sudden a lot of firing outside,' said Sajjad Karim, part of a delegation of European lawmakers visiting Mumbai before a European Union-India summit.

Suddenly 'another gunmen appeared in front of us, carrying machine gun-type weapons. And he just started firing at us ... I just turned and ran in the opposite direction,' he told The Associated Press over his mobile phone.

The shooting was followed by a series of explosions that set fire to parts of the century-old edifice on Mumbai's waterfront. Screams were heard and black smoke and flames billowed, continuing to burn until dawn.

Dalbir Bains, who runs a lingerie shop in Mumbai, was about to eat her steak by the pool at the hotel when she heard the sound of gunfire. She said she ran upstairs, taking refuge in the Sea Lounge restaurant, with about 50 other people.

They huddled beneath tables in the dark, trying to remain as quiet as possible while explosions were going off.

'We were trying not to draw attention to ourselves,' she said.

The group managed to escape before dawn.

The gunmen also seized the Mumbai headquarters of the ultra-orthodox Jewish outreach group Chabad Lubavitch. Around 10.30am, a woman, a child and an Indian cook were seen being led out of the building by police, said one witness.

Chabad spokesman Moni Ender in Israel said there were eight Israelis inside the house, including Rabbi Gavriel Noach Holtzberg and his wife.

Dozens of Indian commandos surrounded the five-story building, where heavy curtains hung behind windows broken by gunfire. Outside the center, thousands of people stood in the narrow alleyways watching the standoff.

Among those foreigners still held captive in all three buildings were Americans, British, Italians, Swedes, Canadians, Yemenis, New Zealanders, Spaniards, Turks, a Singaporean and Israelis.

At least three top Indian police officers - including the chief of the anti-terror squad - were among those killed, said Mr Roy.

The United States and Pakistan were among the countries that condemned the attacks.

In Washington, President George W. Bush offered Singh 'support and assistance' as he works to restore order in the populous and growing South-west Asian nation, according to White House press secretary Dana Perino.

The motive for the onslaught was not immediately clear, but Mumbai has frequently been targeted in terrorist attacks blamed on Islamic extremists, including a series of bombings in July 2006 that killed 187 people.

An Indian media report said a previously unknown group calling itself the Deccan Mujahideen claimed responsibility for the attacks in e-mails to several media outlets. There was no way to verify that claim.

Magnus Ranstorp, a terrorism specialist with the Swedish National Defense College, said there are 'very strong suspicions' that the coordinated Mumbai attacks have a link to Al-Qaeda.

He said the fact that Britons and Americans were singled out is one indicator, along with the coordinated style of the attacks.

Indian Prime Minister Manmohan Singh blamed 'external forces.' 'The well-planned and well-orchestrated attacks, probably with external linkages, were intended to create a sense of panic, by choosing high profile targets and indiscriminately killing foreigners,' he said in address to the nation.

Later on Thursday, the Indian navy said its forces were boarding a cargo vessel suspected of ties to the attacks.

Navy spokesman Captain Manohar Nambiar said on Thursday that the ship, the MV Alpha, had recently come to Mumbai from Karachi, Pakistan.

Mumbai, on the western coast of India overlooking the Arabian Sea, is home to splendid Victorian architecture built during the British Raj and is one of the most populated cities in the world with some 18 million crammed into shantytowns, high rises and crumbling mansions.

Among the other places attacked was the 19th century Chhatrapati Shivaji railroad station - a beautiful example of Victorian Gothic architecture - where gunmen sprayed bullets into the crowded terminal, leaving the floor splattered with blood.

'They just fired randomly at people and then ran away. In seconds, people fell to the ground,' said Nasim Inam, a witness.

Other gunmen attacked Leopold's restaurant, a landmark popular with foreigners, and the police headquarters in southern Mumbai, the area where most of the attacks took place. Gunmen also attacked Cama and Albless Hospital and G.T. Hospital, though it was not immediately clear if anyone was killed. -- AP

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