ISLAMABAD, 30 May 2008 — A report in a newspaper yesterday set off rumors of President Pervez Musharraf’s impending resignation. The rumors caused a major fall in the country’s main Karachi Stock Exchange, where the key KSE-100 index plunged 4.5 percent. Stocks recovered somewhat after denials from presidential and military spokesmen.

A front page story in the News newspaper yesterday focused on a late-night meeting between army chief Gen. Ashfaq Kayani and Musharraf.

The military issued a statement saying Kayani “regretted that a section of press is trying to unnecessarily sensationalize routine functional matters.”

A spokesman for Musharraf rebutted the newspaper article’s assertion that Musharraf had agreed to leave his official residence in Rawalpindi. “Neither has there been any discussion of the president moving out of the President’s Lodge, nor is there any plan for him to do so,” said Rashid Qureshi.

Formerly known as Army House, the Rawalpindi residence was renamed the President’s Lodge after Musharraf quit as army chief last November and opted to continue living there for security reasons.

Another close aide to Musharraf said any suggestion that the army had asked him to step down was “totally wrong.”

During his talks on Wednesday night and early yesterday with Musharraf, Kayani informed him about the various changes he was making in the army including the transfer of the commander of an elite unit deployed during previous coups.

The army said the transfer of Brig. Asim Bajwa away from the helm of the III Brigade based in Rawalpindi, a garrison city adjoining Islamabad, was a “routine” matter that was ordered a month ago.

The brigade occupied key installations during military coups in 1977 and again in 1999, when then army chief Musharraf came to power. It was also involved in last year’s operation against the extremist Red Mosque.

An army statement said Bajwa — known in official circles as a Musharraf loyalist — “having completed his command tenure is proceeding for a professional course and there is no abrupt change in it.”

The posting was one of nearly 500 ordered by General Headquarters a month ago, it added. It did not name the brigade’s new commander. But military sources said Brig. Fahim Rao has replaced Bajwa.

Kayani also replaced the guard battalion of President’s Lodge.

In another development, the chairman of the Senate, who takes over the duties of president in his absence, has been asked to cut short his visit to Germany and return to Pakistan latest by tomorrow.

The central executive committee of the Pakistan People’s Party, meanwhile, gave its Co-Chairman Asif Ali Zardari mandate to negotiate with Musharraf the constitutional package which the party has prepared and is meant to curtail presidential powers.

Zardari is under tremendous pressure from lawyers to restore dozens of judges Musharraf sacked last year and from former Premier Nawaz Sharif who wants Musharraf ousted. Yesterday Sharif demanded that Parliament impeach Musharraf and the government charge him with sedition. Gunning for Musharraf at this stage, PPP fears, could trigger another martial law.

Sharif, the man ousted by Musharraf nine years ago, said in Lahore yesterday that the ruling coalition that won elections in February had agreed to expel Musharraf from power. Musharraf should be tried as a “traitor,” he said.

Political analysts say that while the army has taken a more constitutional role since the election, its top brass would be unlikely to stomach the humiliation of a former chief.

The army has ruled Pakistan for more than half the country’s history since it was carved out of British-ruled India in 1947.

— With input from agencies