Fears of all-out warfare, meanwhile, wiped another 1.9 percent off the Bombay Stock Exchange, while Pakistan's main bourse remained shut Thursday to avert further heavy losses posted over the past four days.

On the frontlines, fierce artillery battles between Indian and Pakistani soldiers again raged in Kashmir, leaving at least another five people dead and several wounded on both sides.

Indian Prime Minister Atal Behari Vajpayee told a press conference in Kashmir's summer capital Srinagar that there was "no question" of holding talks with Pakistan until President Pervez Musharraf matched his words with deeds in reining in Islamic militants.

Asked if the two sides were close to war, he replied: "The situation is serious and it is a challenging situation, and we will meet the challenge."

He added cryptically: "We had said war clouds were hovering, but sometimes lightning strikes even if the weather is clear. We hope that the lightning will not strike."

The prime minister's comments come a day after he belligerently warned troops stationed in Kashmir's border areas to be ready for a "decisive fight".

The increasing war-talk on both sides linked to increased military mobilisation fuelled fears that India and Pakistan are lurching towards war, which British Foreign Secretary Jack Straw warned Thursday had the potential for igniting nuclear conflict.

"There is certainly a risk (of nuclear war)," Straw told BBC radio.

Pakistan, meanwhile, said Thursday it would pull troops from the Afghan border and recall soldiers from UN peacekeeping duties in Sierra Leone.

"India has created a situation on our borders which demands that we should reorganise and redeploy all forces in a ready state," Information Minister Nisar Memon told AFP by telephone from the tense border region.

At the same time, Pakistani Foreign Minister Abdul Sattar called on the United Nations to pressure India to begin negotiations over Kashmir, describing the New Delhi government, in a letter to UN Secretary General Kofi Annan, as "an arrogant power" which was using the fight against terrorism as a pretext for aggression.

Analysts said Islamabad's threat to redeploy troops from peacekeeping duties in Sierra Leone and from the Afghan border, where they are involved with US forces in helping track down al-Qaeda fighters, was an attempt to "internationalise" the regional row.

Vajpayee late Thursday went into an hour-long huddle in New Delhi with his Cabinet Security Committee, essentially his war cabinet.

Foreign Minister Jaswant Singh said afterwards that the meeting had been a "stocktaking of the current situation." He did not elaborate.

Also Thursday, Pakistan's military top brass met in Rawalpindi near the capital Islamabad to review strategies in case of war with India.

In a statement issued after the meeting, Musharraf reiterated that "while Pakistan stood for peace, its valiant armed forces were totally prepared to respond effectively to any attempt at aggression."

Clearly alarmed at the escalating tension, international leaders have launched a diplomatic blitz on both countries.

US Secretary of State Colin Powell called Musharraf twice Thursday, an official close to the Pakistani president told AFP.

Musharraf reiterated Pakistan's position that it does not want war with and favours negotiations to end the dangerous stand-off, the official said, adding that Powell urged restraint.

British Prime Minister Tony Blair had earlier pleaded with the nuclear-armed rivals to hold off a potentially disastrous conflict, while Washington said it had come up with specific ideas to defuse tensions between the two rivals.

European Union foreign affairs commissioner Chris Patten was due in New Delhi late Thursday after visiting Pakistan and Afghanistan, followed by Straw on Monday.

US Deputy Secretary of State Richard Armitage is expected in India and Pakistan in early June.

A senior army source told AFP in Jammu, southern Kashmir, meanwhile, that India has been strengthening its strategic air and ground defences along its borders with Pakistan for the past week.

"Many battery units, including Bofors guns, are being positioned in Kashmir to give a befitting reply to Pakistani shelling along our borders," the source said.

All rights reserved. � 2002 Agence France-Presse. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by Agence France-Presse. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of Agence France-Presse.

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