Pakistan's dominant party published its election manifesto on Monday a day after its rival, former prime minister Nawaz Sharif, said his party would take part in the polls raising the prospect of a hung parliament.

The Pakistan Muslim League (PML), which backs President Pervez Musharraf, played up the strong growth Pakistan has enjoyed under its rule and promised a mass literacy campaign and strong defence.

The party was cobbled together after Musharraf overthrew Sharif in 1999 to furnish Musharraf with a political base and analysts expect it to fare badly as Musharraf's popularity has slumped this year.

The participation of Sharif's party, the Pakistan Muslim League (Nawaz), sets the scene for a bruising battle in Punjab, Pakistan's most populous province which returns about half the members of parliament, between the two parties.

Former prime minister Benazir Bhutto, whose main areas of strength is Sindh province in the south, will also be hopeful of picking up more seats in Punjab now that the votes against her will be split between the ruling party and Sharif's.

PML leaders put on a brave face when they launched their manifesto, saying they welcomed Sharif's decision to take his party into the election.

We are very confident and ready to face any opponent. We have a strong manifesto and strong candidates, party secretary general Mushahid Hussain told reporters.

The party ruled until last month when a caretaker administration packed with party supporters took over to oversee the polls. It wields power in most district administrations.

Pakistan's main share index ended 0.68 percent higher as investors saw Sharif's decision to take his party into the election as helping ease political uncertainty, dealers said.

Musharraf will need support in the new parliament or he could face a hostile National Assembly, government and prime minister.

A hostile parliament could even move to impeach Musharraf, who stepped down as army chief last month, over accusations he acted unconstitutionally in securing a new term as president.

THREE-WAY SPLIT

Sharif said he had decided his party would contest after failing to secure unanimous opposition support for a boycott. Bhutto discussed a boycott with Sharif but was never convinced.

Sharif and Bhutto, both recently back from years in exile, failed to agree on whether to insist that judges Musharraf sacked when he declared emergency rule on November 3 be restored to their positions before the election.

Bhutto argued a boycott would leave the field open for a walkover by Musharraf's allies, although she says she reserves the right to protest after the vote if she deems it was rigged.

A boycott would have deprived the vote of credibility and prolonged instability that has raised concern about the nuclear-armed U.S. ally and its efforts to fight militancy.

Musharraf has promised to lift emergency rule on December 15.

Sharif has been barred from running because of criminal convictions he says were politically motivated. He said on Monday he had no plans for an electoral alliance with Bhutto.

The participation of all three main parties increased the likelihood of a hung parliament, analysts said.

I think that is what is most possible ... a hung parliament, said independent analyst Nasim Zehra.

The fact that none of the parties, none of the groups, will be able to get a majority in parliament, so in a sense you can have a three-way situation, she said.

Parties were likely to have to try to build coalitions after the election, another analyst said.

Unless there is a landslide for someone, which I don't see, there are bound to be alliances, said former minister and analyst Shafqat Mahmood.

(Additional reporting by Simon Gardner; Editing by Robert Birsel and Alex Richardson)

Pakistan