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By Augustine Anthony

RAWALPINDI, Pakistan, Dec 27 (Reuters) - Pakistan opposition leader Benazir Bhutto was assassinated by a suicide bomber on Thursday, plunging the nuclear-armed country into one of the worst crises in its 60-year history.

Her death after an election rally in the city of Rawalpindi triggered a wave of violence, especially in her native Sindh province, and could lead to the postponement of Jan. 8 polls meant to return Pakistan to civilian-led democracy.

Bhutto, 54, had hoped the huge popular following she enjoyed among the Pakistani poor would propel her to power for the third time as prime minister in an election meant to stabilise a country wracked by Islamist violence.

She was pronounced dead in hospital in Rawalpindi, the home of the Pakistan army and the same city where her father, former prime minister Zulfikar Ali Bhutto, was hanged in 1979 after being deposed by a military coup.

Police said the attacker fired shots at Bhutto at the end of the rally before blowing himself up.

"It is the act of those who want Pakistan to disintegrate," said Farzana Raja, a senior official from Bhutto's Pakistan People's Party. "They have finished the Bhutto family."

Former Pakistan prime minister Nawaz Sharif, Bhutto's old political rival, said his party would boycott the election.

He blamed President Pervez Musharraf, who seized power in a military coup in 1999 but has since stepped down from the army, for creating instability in the country. "Free elections are not possible in the presence of Musharraf," he said. "Musharraf is the root cause of all problems."

Musharraf imposed a state of emergency in November in what was seen as an attempt to stop the judiciary from vetoing his re-election as president. He lifted emergency rule this month.

In Karachi, the notoriously violent capital of Sindh province, thousands poured on to the streets to protest. "There is trouble almost everywhere," a senior police official said.

Violence eased towards midnight after dozens of vehicles and several buildings were torched. Police said there were no casualties, but the central bank and all schools would be closed for three days of mourning.

CHAMPIONED BY THE UNITED STATES

The United States, which relies on Pakistan as an ally against al Qaeda and the Taliban in neighbouring Afghanistan, had championed the Oxford- and Harvard-educated Bhutto, seeing in her the best hope of a return to democracy.

"The United States strongly condemns this cowardly act by murderous extremists who are trying to undermine Pakistan's democracy," President George W. Bush said in a statement.

Bush telephoned Musharraf and urged Pakistanis to honour her memory by continuing with the democratic process.

The United Nations Security Council denounced the assassination as a "heinous act of terrorism" and called on all Pakistanis to exercise restraint and maintain stability.

Analysts said Bhutto's death -- which followed a wave of suicide attacks across the country and the worsening of an Islamist insurgency on Pakistan's border with Afghanistan -- could make it impossible to go ahead with the election.

"I think there is a very real possibility that Musharraf will decide that the situation has got out of control and that he needs to impose emergency rule again," said Farzana Shaikh from the Chatham House analysis group in London.

"This is not the first crisis Pakistan has faced since its inception in 1947, but I would be inclined to say that it is the worst convergence of crises we have seen," Shaikh said.

While Islamist hardliners have been named as possible perpetrators, analysts said Bhutto's political opponents and those close to Musharraf could not be ruled out.

"As well as the Taliban and al Qaeda elements, there are many other candidates -- there are elements within the military and elements within the intelligence services, which never had a good relationship with Bhutto," analyst M.J. Gohel said.

Musharraf condemned "in strongest possible terms the terrorist attack that resulted in the tragic death of Bhutto and many other innocent Pakistanis".

"This cruelty is the work of those terrorists with whom we are fighting," Musharraf said. "I seek unity and support from the nation ... we will not sit and rest until we get rid of these terrorists, root them out."

He declared three days of mourning, but made no mention of the election in his brief television address.

Police said 16 people had been killed in the attack.

Senior Bhutto aide Makhdoom Amin Fahim said that as Bhutto was leaving the rally she got out of her bullet-proof vehicle to greet supporters just outside the gate, where she was attacked. "Had she not stood outside, she would have not been killed."

Interior Ministry spokesman Javed Iqbal said she had been killed by the bomb since there was no bullet wound on her body.

It was the second attack on Bhutto in under three months. On Oct. 19 a suicide bomber killed nearly 150 people as she paraded through Karachi on her return from eight years in exile.

On Thursday, Bhutto had told of the risks she faced.

"I put my life in danger and came here because I feel this country is in danger. People are worried. We will bring the country out of this crisis," Bhutto told the Rawalpindi rally.

India, Pakistan's giant neighbour and rival, said Bhutto's assassination was a terrible blow to the democratic process.

Bhutto became the first democratically elected female prime minister in the Muslim world in 1988 at the age of 35. She was deposed in 1990, re-elected in 1993, and ousted again in 1996 amid charges of corruption and mismanagement.

She said the charges were politically motivated.

Bhutto's husband, Asif Ali Zardari, arrived in Islamabad from Dubai to collect his wife's body and take it for burial in Larkana, the Bhutto ancestral home where her father is buried.

Both of her brothers died in mysterious circumstances. (Additional reporting by Kamran Haider and Robert Birsel; writing by Myra MacDonald; Editing by Giles Elgood)

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