Kenyan President Mwai Kibaki ended a row over top judicial appointments that had threatened the country's fragile coalition government by saying on Tuesday that he would start the selection process afresh.

Kibaki has been under intense international and local pressure, including from the United States, diplomatic missions in Kenya and rights groups, to withdraw his nominations, which had been declared illegal by the High Court and parliament.

Prime Minister Raila Odinga objected to the president's nominations for Chief Justice, Attorney General and Director of Public Prosecutions, saying Kibaki had acted without consulting him as required by the new constitution.

Katiba (Constitution) wins round one as Kibaki withdraws the controversial four nominees, opposition politician Martha Karua wrote on Twitter, referring to the new basic law promulgated by Kibaki last August.

The row in east Africa's biggest economy -- which suffered political and ethnic violence after the last elections in 2007 -- has caused concern among investors that it could break up the cabinet, denting the stock market and shilling.

It is a positive move and it will certainly have a positive bearing on the country. I believe Kenya has matured politically and its ability to resolve such conflicts demonstrates democracy, said Roland Cooper, Fitch Ratings Africa director.

The Kenyan shilling closed weaker against the dollar on Tuesday, but traders expected it to recover now that Kibaki has defused the poisonous political wrangle.

The country risks losing international goodwill, and possibly some financial support, if it fails to implement its new constitution in a transparent and timely manner.

Kofi Annan, the former U.N. Secretary-General who brokered the peace deal between Kibaki and Odinga that ended the post-election fighting three years ago, had written to the two leaders urging them to reduce the political temperature sparked by the row.

CONFIDENCE IN JUDICIARY

Kibaki's nominations were meant to improve public confidence in the judiciary, and support his case for moving the trials of key suspects behind the post-election violence of 2008 to Kenya from the International Criminal Court (ICC).

The ruling class wants cases against senior politicians suspected of orchestrating the violence to be held in Kenya, but diplomats and analysts said Kibaki stood no chance of convincing the U.N. Security Council, or the ICC, to allow the transfers if he had forced through his unpopular appointments.

Kibaki has opted to lose a smaller battle locally and prepare for a bigger battle coming ahead on the international scene, said political commentator Kwamchetsi Makokha.

Pushing through his nominees would have undermined his case at the Security Council or the ICC, because the disagreements caused by his appointments would have hurt the credibility of the judiciary, which he has been painstakingly trying to build.

Kibaki's quest to have the trials held in Nairobi is tied to his support for Finance Minister Uhuru Kenyatta and William Ruto, who has been suspended as higher education minister to fight a corruption case, in their bid to run for the presidency.

Analysts say Kibaki sees either of the two as a potential successor and key to his plan to block Odinga -- who was his rival in the disputed 2007 election and is a frontrunner to succeed him, according to opinion polls.

Kibaki is barred by law from standing for a third term.

We had said from the start that we would use all the legal, political and constitutional means to have the nominations reversed, Odinga, whose political capital has risen following Kibaki's decision, told reporters.

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