Pakistan - A car bomb ripped through a crowded market killing 87 people in Pakistan's city of Peshawar on Wednesday, just hours after Washington's top diplomat arrived pledging a fresh start in sometimes strained relations.

Wednesday's bomb, the latest urban attack since the army launched a major assault on rural Taliban strongholds two weeks ago, was the deadliest since 2007 when around 140 died at a procession to welcome home former prime minister Benazir Bhutto, who was assassinated just weeks later.

The bomb went off in the busy Peepal Mandi market street in a city that for years served as the headquarters of the Pakistan- and U.S.- backed mujahideen war against the Soviet Union's occupation of Afghanistan.

Although nobody claimed responsibility, suspicion immediately fell on Pakistani Taliban militants who are the target of the army offensive.

The rugged landscape between Afghanistan and Pakistan has become a haven for Taliban militants fighting on both sides of the border as well as many hundreds of al Qaeda operatives and other foreign Islamist insurgents.

Hours after the blast, visiting U.S. Secretary of State Hillary Clinton told a news conference that Washington fully supported Pakistan's battle.

I want you to know that this fight is not Pakistan's alone, she said.

So this is our struggle as well and we commend the Pakistani military for their courageous fight and we commit to stand shoulder to shoulder with the Pakistani people in your fight for peace and security.

Sahib Gul, a doctor at Peshawar's main hospital, said the dead from Wednesday's bomb included many children and women.

The car was parked outside a market frequented mostly by women, city official Azam Khan told Reuters

Several buildings and a mosque have been badly damaged while a fire has engulfed buildings, witness Aqueel-ur-Rehman told Reuters from the scene.

RESOLVE NOT SHAKEN

Defiant Pakistani Foreign Minister Shah Mehmood Qureshi told a news conference with Clinton that the militants would be crushed.

We are facing this on a daily basis but the resolve and determination will not be shaken, he said.

Addressing those responsible, he added: We will not buckle. We will fight you. We will fight you because we want stability and peace in Pakistan.

Pakistani stock market investors have been unnerved by the violence in recent weeks and the main index closed down 0.69 percent lower at 9,251.84 points. The rupee was also down at 83.54/59 to the dollar.
Clinton acknowledged that misunderstandings dogged U.S.-Pakistan ties and pledged to refocus the relationship on the needs of the people including strengthened economic assistance and development of democratic institutions.

Her visit comes amid widespread Pakistani anger over a recent major U.S. aid bill which, despite tripling assistance to $1.5 billion a year for the next five years, has been bitterly denounced for imposing conditions critics say violate Pakistani sovereignty.

The bill mainly focuses on socio-economic development but also requires Clinton to certify to Congress that Pakistan is cooperating with efforts to combat militant groups and nuclear proliferation, and to ensure civilian government control over the powerful military.

Clinton -- who this week turned 62, the same age as Pakistan itself -- said that she looked forward to bringing the U.S. message directly to the Pakistani people.

What do people in Pakistan want? Good jobs, good healthcare, good education for our children, energy that is predictable and reliable -- the kinds of everyday needs that are really at the core of what Americans want, she said.

(Additional reporting by Kamran Haider; Writing by David Fox; Editing by Robert Birsel)

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