ISLAMABAD Pakistans President Pervez Musharraf is expected to resign rather than face impeachment by parliament, Western media reported.

Speculation has been mounting that former army chief Musharraf would quit since the ruling government coalition, led by the party of assassinated former prime minister Benazir Bhutto, said last week it planned to impeach him.

A spokesman for the president has repeatedly denied that he was about to quit, and he did so again on Friday.

A coalition official preparing for the presidents impeachment said he could not confirm Musharrafs resignation plans but said there was a growing sense he was going to step down.

The Financial Times quoted an unidentified senior Pakistani government member as saying a deal had been brokered between Musharraf and members of the newly elected coalition government.

'The president will neither be impeached nor prosecuted on any charges. He will try and stay in Pakistan,' the paper quoted the official as saying.

The long-running crisis surrounding Musharrafs future has heightened concern in the United States and among other allies about the stability of the nuclear-armed Muslim state, which is in the front line of the campaign against militancy.

In Washington, White House spokeswoman Dana Perino referred to reports of Musharrafs resignation plan as a 'rumor mill'.

'Weve heard the reports and we continue to monitor it,' she said, adding the United States considered the leadership of Pakistan an issue for Pakistanis.

Musharraf seized power in a 1999 coup but has been isolated since his allies lost a February election.

The uncertainty over his fate is unnerving investors, with the rupee setting a new low of around 75.05/15 to the dollar on Wednesday and stocks hovering near two-year lows.

Financial markets were closed on Thursday.

A Pakistani newspaper this week said Musharraf was expected to announce a decision to step down on Independence Day on Thursday. Instead, he issued a call for reconciliation, which he said was essential to tackle economic problems and militancy.

But his appeal failed to check government attempts to force him from power with coalition officials saying preparations to impeach the president were on track.

Musharrafs chief spokesman, retired Major-General Rashid Qureshi, said he had no idea of any plan by Musharraf to step down or negotiations on his resignation.

'Im tired of saying theres no such thing,' he said.

The New York Times said details of how Musharraf would quit, and whether he would be able to stay in Pakistan or would seek residency abroad, were under discussion between his representatives and the coalition.

The Financial Times said Musharraf had demanded he be allowed to retire to his farm in Islamabad and that there be no moves to prosecute him once out of office.

It quoted a government official as saying the powerful army had insisted Musharrafs demands be met.

Coalition leaders said this week the army, which has ruled for more than half the countrys history since its founding in 1947, would not intervene to back its old boss.

Analysts say the army is loath to step back into the political fray and is unlikely to take action on his behalf.

Senior Bhutto party official Farhatullah Babar, who is on a team preparing impeachment charges, said speculation was mounting that Musharraf would step down.

'There are all sorts of rumors ... but the general sense is that yes, he is resigning,' Babar said.

But he said his party and its main coalition partner, the party of former prime minister Nawaz Sharif, who Musharraf ousted in 1999, differed on the question of prosecuting the president.

Sharif said on Thursday his usurper had to face the consequences of his actions.

'We say his trial, if it all, is the prerogative of parliament to decide,' Babar said.