By Zeeshan Haider

ISLAMABAD, Jan 2 (Reuters) - Pakistan is expected to set a new date for elections on Wednesday after the assassination of opposition leader Benazir Bhutto sparked bloodshed and rage against President Pervez Musharraf's government.

Analysts expect the Jan. 8 vote in nuclear-armed Pakistan to be postponed to late February and say a delay could lead to renewed violence.

The Pakistan Muslim League, which backs Musharraf, has said it favours postponing the vote because of security concerns.

Supporters of Bhutto's Pakistan People's Party (PPP) and the main opposition party, led by former prime minister Nawaz Sharif, want the Jan. 8 election to go ahead as planned, fearing a delay would work to Musharraf's advantage.

Bhutto's widower, Asif Ali Zardari, the new co-leader of the PPP alongside their 19-year-old son Bilawal, released a joint statement with Sharif on Tuesday.

"The January 8th elections must proceed as scheduled. This will not only be a tribute to the memory of Benazir Bhutto, but even more important, a reaffirmation of the cause of democracy for which she died."

They rejected an announcement from the Election Commission, which has said that "in principle" the election is being delayed and a new date will be announced.

"Suppose they postpone elections for 10 days, 15 days or one month and there is another assassination, then what will happen?", Zardari, told Reuters Television on Tuesday.

"What guarantee is there that once they postpone the elections the situation will be under control?"

The PPP would expect to reap a considerable sympathy vote following Bhutto's murder.

Her killing has fuelled doubts about the country's stability and the transition to democratic rule in Pakistan, a crucial U.S. ally in its anti-terrorism efforts.

Nearly 60 people died in the post-killing violence and, while the situation has now calmed, it remains tense and markets are gripped by fears of capital flight if security worsens. Share prices fell 3 percent on Tuesday.

Bhutto, relatively liberal by Pakistan's standards and an opponent of Islamist militancy, returned from self-imposed exile in October. Hours after arriving home she narrowly escaped a suicide blast against her motorcade that killed some 140 people.

Her death wrecked U.S. hopes of a power-sharing deal between her and Musharraf, who took power in a military coup in 1999 but left the army in November to become a civilian president. (Writing by Matthew Jones; Editing by Michael Winfrey)

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