LAHORE, Pakistan (Reuters) - Pakistani authorities said on Friday they were making progress in the investigation of this week's attack on Sri Lanka's cricket team as suspicion settled on home-grown militants.

The attack by a dozen gunmen on the team and its police escorts as they drove to the main stadium in Lahore on Tuesday raised new fears about prospects for a nuclear-armed country that some analysts fear could become a failed state.

We are progressing well and will release our findings very soon, but at the moment any comment or disclosure would jeopardize our efforts, said the policeman in charge of the investigation, Salahuddin Niazi.

Beset by economic problems, U.S. ally Pakistan has reeled under a wave of attacks in recent years, most carried out by militants linked to the Taliban or al Qaeda.

The civilian government which came to power a year ago is embroiled in a confrontation with the main opposition party over a court ruling banning its leaders from elected office and forcing the party's government from power in Punjab province.

Government critics have blamed the political machinations in Punjab, of which Lahore is capital, for the security failing that allowed the gunmen to attack the Sri Lankans.

Seven Pakistanis, six policemen and the driver of a bus carrying match officials, were killed. Six Sri Lankan players and two team officials were wounded.

More political trouble is looming for the government and President Asif Ali Zardari, widower of former prime minister Benazir Bhutto.

Anti-government lawyers backed by opposition parties are due to launch a cross-country protest convoy on March 12 to press for an independent judiciary. They plan an indefinite sit-in near parliament in Islamabad from March 16.

ON THE RIGHT TRACK

The protesters want the reappointment of a former Supreme Court chief who then army chief and president Pervez Musharraf dismissed in 2007. Musharraf's move sparked a protest campaign that ultimately led to his resignation last August.

The lawyers, in league with the parties which can mobilize their supporters, pose a significant challenge to Zardari who has refused to reappoint the independent-minded judge.

Pakistani stocks and the rupee ended lower on security and political worries and dealers said investors were likely to stay sidelined until after the lawyers' protest.

Punjab provincial governor Salman Taseer said on Thursday authorities knew the identity of those responsible for the Lahore attack but he declined to elaborate.

Another senior police officer declined to comment on that, saying only: We're on the right track.

There is a long list of suspects.

Members of the banned Pakistani-based Lashkar-e-Taiba (LeT) are emerging as the most likely culprits, Dawn newspaper on Friday cited investigators as saying.

India said the LeT was behind November's attacks in Mumbai which killed nearly 170 people and Pakistan detained several of its leaders in response. The group was set up 20 years ago to battle Indian forces in the disputed Kashmir region.

A spokesman for the LeT denied involvement. The attack was the handiwork of Indian agencies and was meant to malign the Kashmiri independence movement and Pakistan, the spokesman said in a telephone call to Reuters in Indian Kashmir.

Another militant group that analysts say could have carried out the Lahore attack is the al Qaeda-linked Lashkar-e-Jhangvi.

Dawn newspaper said investigators had ruled out the possibility of involvement by Indian agents or ethnic minority Tamil guerrillas from Sri Lanka.

(Additional reporting by Sahar Ahmed and Sheikh Mushtaq; Writing by Robert Birsel, Editing by Dean Yates)

Pakistan Cricket