* Zardari slams critics, says will defend democracy
* Economic challenges (Adds comment, background)
By Augustine Anthony
ISLAMABAD, Pakistan, Dec 27 (Reuters) - A suicide bomber blew himself up on Sunday outside a Shi'ite Muslim meeting hall in the main city in the Pakistani part of the disputed Kashmir region, killing at least 5 people, police said.
The blast underscored security challenges facing U.S. ally Pakistan, which is already struggling against al Qaeda-linked militants and is under U.S. pressure to help stabilise Afghanistan, where a Taliban insurgency is raging.
The explosion went off at the end of a procession for Ashura, the Shi'ite calendar's biggest event. A witness said he saw body parts of the suicide bomber on the street in the city of Muzaffarabad. At least 30 people were wounded, police said.
Security has been beefed up across the country for Ashura, a flashpoint for deadly attacks by Sunni militants in recent years.
Earlier, President Asif Ali Zardari vowed to survive politically and defend democracy in nuclear-armed Pakistan.
Speaking on the second anniversary of the assassination of his wife, former prime minister Benazir Bhutto, the embattled leader also suggested he had no intention of resigning after the possibility of renewed corruption charges against his close aides further weakened him.
"If anyone casts and evil eye on democracy, we will gouge out their eyes," Zardari told supporters of his party in Bhutto's hometown of Naudero in the southern province of Sindh.
Zardari, who has faced calls for to relinquish some of his powers, did not say which critics he was referring to. It could have been hostile members of the media or the military, the true arbiters of power.
He also said he would swear in a new government after the next general election, due by 2013.
Violence has intensified since July 2007, when the army cleared out militants from a radical mosque in Islamabad, and victims have included Bhutto, who was killed in a suicide bomb and gun attack after returning home from self-imposed exile.
SMALL BLAST IN KARACHI
Police official Adnan Khan, who was on duty outside the hall, called an Imambargah, where Shi'ites gather at the end of Ashura processions, said the explosion was a suicide bombing.
"The bomber was with a small procession that was coming towards the Imambargah and when he saw people being searched, he set off his explosives," Khan told Reuters.
A blast also occurred at the end of a similar procession in Pakistan's commercial capital, Karachi, and 15 people were hurt in what police said was a low-intensity explosion.
Zardari is unpopular and militants show no signs of wavering in their bid to topple the state. But luckily for him, many Pakistanis and the military are united in the view that the insurgency must be crushed, possibly making his job easier.
The army had not been cracking down hard on militants, which it had supported in the fight against Soviet occupation of Afghanistan in the 1980s. The Afghan Taliban are also seen as leverage against the influence of enemy India in Afghanistan.
But the Pakistani Taliban have turned their guns on their former army patrons, and their harsh interpretation of Islamic rule -- including public whippings and hangings -- angered Pakistanis.
The International Monetary Fund last week issued a vote of confidence in Pakistan's economy -- in virtual recession -- by approving a $1.2 billion loan payment. That could ease some of the pressure on Zardari, at least on one front.
The United States, grappling with a resurgent in Afghanistan, is pushing Pakistan hard to root out militants who attack across the border into Afghanistan. It has also intensified pilotless drone attacks on militants in northwest Pakistan.
Pakistan officially objects to the drone strikes, saying they violate its sovereignty and the civilian casualties they sometimes inflict inflame public anger. But U.S. officials say the strikes are carried out under an agreement with Pakistan that allows its leaders to decry them in public.
Earlier in the day, police said militants apparently seeking revenge for a government offensive against them, blew up the house of a district government official in the Kurram region on the Afghan border, killing him and five of his family members.
(For more Reuters coverage of Afghanistan and Pakistan, see:http://www.reuters.com/news/globalcoverage/afghanistanpakist an) (Additional reporting by Hassan Orakzai, Javed Hussain, Fais al Aziz and Abu Arqam Naqash; Writing by Michael Georgy; Editing by Robert Birsel)
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