Three bombs exploded at a Shi'ite procession in the Pakistani city of Lahore on Wednesday, killing at least 18 people and wounding over 100, piling pressure on a government already overwhelmed by floods.
Witnesses said a suicide bomber blew himself up in a crowd of hundreds, after a lull in violence during the floods, the type of attack that Pakistani Taliban militants have claimed in the past.
According to my information 18 people are dead and over 100 injured, Sajjad Bhutta, a senior Lahore district administration official, told state-run Pakistan Television.
Soon after the blasts, a mob set fire to a police station and several vehicles. People also beat policemen, witnesses said.
Pro-Taliban Sunni militants frequently attack Shi'ites as part of a campaign to destabilise the government.
The renewed violence came as millions of Pakistanis continued to struggle for food and water more than a month after the worst floods in the country's history, deepening concerns over the stability of the U.S. ally.
The floods have ravaged Pakistan's economy, Prime Minister Yusuf Raza Gilani said, with massive job losses and soaring inflation expected to hurt a nation whose stability is vital to the U.S. war against Islamist militants in both Pakistan and Afghanistan.
The floods have inflicted damage to the economy which may, by some estimates, reach $43 billion (27 billion pounds), while affecting 30 percent of all agricultural land, Gilani said briefing the cabinet.
Agriculture is the mainstay of the economy, with cotton the main cash crop. The sector is one of the biggest sources of employment.
Facing the prospect of long-term economic pain, Pakistan hopes the International Monetary Fund (IMF) will soften the terms of an $11 billion (7 billion pounds) loan. Pakistani and IMF officials are meeting in Washington to work out the impact of the floods.
This economic loss will translate into massive job losses affecting incomes of thousands of families, which may have serious social implications, said Gilani, whose government was heavily criticised for its slow response to the catastrophe.
Pakistan's powerful military has taken charge of relief efforts, but Islamist charities, some linked to militant groups, have also stepped in, raising concerns they may exploit public anger.
The United States on Wednesday formally added the Tehrik-e-Taliban Pakistan, or Taliban Movement of Pakistan to its blacklist of foreign terrorist organisations subject to travel and economic sanctions.
The TTP is the main Pakistani militant alliance which operates from Pakistan's northwest. It has links with al Qaeda as well as the Punjabi groups and is suspected of being behind most bomb and suicide attacks across Pakistan.
Before the floods struck a vast swath of the country, the army said it had scored major gains against the Taliban. In renewed air strikes in the northwest region, Pakistani forces killed up to 62 militants, their family members and other civilians with no ties to the fighters, officials said on Wednesday.
Washington has repeatedly urged Pakistan to go after militant sanctuaries in the northwest saying these have helped boost the Afghan insurgency, now at its deadliest. Pakistan says it is doing all it can to fight the militants.
Testing ties further, Pakistan's army said on Wednesday it scrapped talks with U.S. military officials after a military delegation sent to Washington had to go through unwarranted airport security checks.
British Deputy Prime Minister Nick Clegg said it could take Pakistan years to recover from the floods with threats from water-borne disease and opportunistic militants. The danger always is that you get groups who have an ulterior motive who provide aid to try to curry favour, he said after visiting an aid camp.
Pakistan is expected to register economic growth of just 2.5 percent because of the impact of flooding, the information minister said, trimming an earlier 4.5 percent target.
The budget deficit is expected to climb to 6-7 percent of gross domestic product in the fiscal year 2010/2011, compared with an earlier forecast of 4.5 percent.
(Additional reporting by Zeeshan Haider and Augustine Anthony in Islamabad and Chris Allbritton and Rebecca Conway in Pabbi, Svetlana Kovalyova in Milan and Andrew Quinn in Washington; Writing by Michael Georgy; Editing by Sanjeev Miglani)