Pakistan tightened security in the eastern city of Lahore on Thursday after three bomb attacks killed 33 people and wounded 171 and pressured the U.S.-backed government already overwhelmed by floods.
The blasts which hit a Shi'ite procession on Wednesday bore all the hallmarks of pro-Taliban insurgents, who have carried out sectarian violence designed to destabilise the government.
Security has been tightened in the city to prevent any such incident. We had called the (paramilitary) rangers after the blasts last night, and they are on high alert and can be called again any time if needed, Sajjad Bhutta, Lahore's top administration official, told Reuters.
The government may face renewed militant violence as it tries to manage the country's worst floods and dull expected long-term economic pain caused by them, security analysts say.
The floods struck just as the army said it had made progress in the war against the al Qaeda-linked Sunni Taliban.
Reflecting the growing reach of the Pakistani Taliban, U.S. prosecutors overnight charged its leader Hakimullah Mehsud in the plot that killed seven CIA employees at an American base in Afghanistan last December.
The United States also added the Pakistani Taliban to its list of foreign terrorist organisations and set rewards of up to $5 million (3 million pounds) for information leading to the capture of two of its leaders, Mehsud and Wali-ur-Rehman.
Washington wants to see a stable Pakistan that can help fight militancy in Afghanistan and inside its own borders. Pakistani and U.S. officials are concerned that militant groups could seize upon the disorder caused by the floods to gain recruits.
One month after waters started raging from the northwest to the south, millions are still homeless and potentially fatal diseases threaten to bring a new wave of death and suffering.
Red Cross workers have faced angry crowds when distributing food and other supplies to flood victims, a disturbing trend that could jeopardise operations, a senior official said in Geneva.
An ICRC relief convoy was forced to halt handouts of supplies and retreat hastily in Punjab province this week, according to Jacques de Maio, head of South Asia operations for the International Committee of the Red Cross (ICRC).
Even before the floods struck, Pakistan was struggling with a fragile economy.
Those concerns have increased following widespread devastation to crops and infrastructure which Prime Minister Yusuf Raza Gilani estimated could hit $43 billion (27 billion pounds), almost one quarter of last year's gross domestic product.
Moody's Investors Service changed to negative from stable the outlook on the long-term local currency deposit ratings and financial strength ratings of five leading Pakistani banks, due to economic damages caused by the floods.
The rating agency says it expects economic growth to slow down and inflationary pressures to rise sharply on account of factors such as food shortages.
The gloomy picture for the economy has already affected investor confidence, and the latest bombings have shattered that confidence further, said Mohammed Sohail, chief executive officer of Topline Securities.
Investors were assuming that because of the devastation caused by the floods, terrorism will slow down.
Islamabad hopes the International Monetary Fund will soften terms of an $11 billion (7 billion pounds) loan that has kept its finances afloat.
The IMF and Pakistan will release a statement on Thursday on ongoing discussions of the south Asian country's loan.
The statement at 10:15 a.m. EDT (3:15 BST) follows a week of Washington talks against the backdrop of the floods which destroyed cropland and livestock and displaced millions.
There was some good news from the World Bank, which has increased funding to help Pakistan cope with the floods by $100 million (65 million pounds), to a total of $1 billion (650 million pounds).
(Additional reporting by Faisal Aziz and Sahar Ahmed in Karachi and Chris Allbritton in Charsadda and Stephanie Nebehay in Geneva; Writing by Michael Georgy; Editing by Miral Fahmy)