By Michael Steen

TASHKENT, Aug 31 (Reuters) - Uzbekistan celebrated 16 years of post-Soviet independence on Friday but a pageant of dancing children and patriotic songs failed to hide growing uncertainty about the Central Asian state's future.

President Islam Karimov, in power since 1989 when he reported to the Kremlin, marked the anniversary with a show in a purpose-built arena in the capital Tashkent. He made no comment about the expiry of his latest term at the end of December.

"One thing must be said firmly and with certainty," he told a crowd of about 10,000 cheering guests.

"No one can ignore the work we did during these years to build a democratic state and improve the population's living conditions, or that we achieved the authority we deserve on the world arena."

The mostly Muslim country of 26 million people has never held a vote judged free and fair by international monitors.

Rights campaigners and the United States regularly list it as a country of concern for human rights violations and religious freedom restrictions.

In 2002, parliament extended Karimov's latest and theoretically last term in office until December 2007 but there has been no public mention of an election. There is no legal opposition to Karimov and he has no obvious successor.

"As of right now we expect some kind of election in December and an announcement in the not too distant future," one Western diplomat in Tashkent said. Other options could be a referendum or similar mechanism to keep Karimov in power.

FROZEN RELATIONS

Relations with Western states deteriorated sharply after Uzbek troops opened fire on protesters in the town of Andizhan in May 2005. Witnesses said hundreds of people were killed but the government says 187 people died, all of them either foreign-funded "terrorists" or police.

Washington's relations with Uzbekistan have been "almost frozen" since Andizhan, according to a report this month by Crisis Group, a Brussels-based think tank.

The European Union imposed limited sanctions which it has yet to completely drop, although it is seeking re-engagement, while Russia and China fully backed Karimov over Andizhan.

Most investors shy away from Uzbekistan's Soviet-style economy which relies on cotton, gold and natural gas exports.

At Friday's celebrations the performances included a parade by anti-terrorism troops and songs with anti-Western overtones.

"We won't hand Uzbekistan to anyone, we won't depart from our path," several dozen teenagers mimed to a loud rap song.

One singer, Gulsanam Mamadjonova, performed a song with the lyrics: "Hey you old scoundrel far away, don't teach me how to walk, look at yourself first... and don't teach me how to live."

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