By Erik de Castro ZAMBOANGA CITY, Philippines (Reuters) - Philippine forces launched air strikes on Monday to root out rogue Muslim rebels from a southern city, stepping up efforts to end more than a week of clashes that have killed scores of people.
The fighting has been a stark reminder that decades-old grievances fester in the Catholic-majority country despite strong economic growth and an agreement with the biggest Muslim rebel group that was meant to pave the way to peace.
The army said at least 62 people have been killed, including 51 of the independence-seeking rebels and five civilians.
The fighting, in its eighth day, has been largely in three coastal districts of Zamboanga City on the southern island of Mindanao. About 70,000 residents have been displaced.
Soldiers traded mortar and machinegun fire with the rebels, who are from a breakaway faction of the Moro National Liberation Front (MNLF), while two helicopter gunships fired rockets at their positions, an army spokesman, said.
Another army official, Lieutenant-Colonel Ramon Zagala, justified the use of helicopters despite the fact that the rebels are holding dozens of civilian hostages, saying the aircraft were part of an intensification of a "calibrated response".
"We need to use them in order to finish this at the soonest possible time," Zagala said.
Up to 300 rebels are believed to be in the city.
They object to a deal signed last October with the main Muslim rebel group, the Moro Islamic Liberation Front (MILF), and are trying to derail the pact aimed at ending 40 years of conflict. But they are not expected to succeed, analysts say.
The clashes could tarnish the image of the Philippines as a destination for foreign investment but financial dealers said on Monday the violence has not had an impact on markets.
The peso was around the session high of 43.66 per dollar in the early afternoon and Manila stocks jumped nearly 3 percent, outperforming most Southeast Asian peers.
ON THE OFFENSIVE
Mindanao has reserves of gold, copper, nickel, iron, chromite and manganese, which account for about two-fifths of total reserves in the country.
But Zamboanga is far from most mining operations, at the end of a peninsula in the southwest of Mindanao, which is about the same size as South Korea.
President Benigno Aquino has been in Zamboanga since Friday overseeing the security operation and relief efforts. He rejected a ceasefire plan brokered by his vice president and soldiers went on the offensive on the weekend.
Nearly 50 rebels had been captured as troops take more ground. Interior Secretary Manuel Roxas said rebels were trying to escape and one was caught pretending to be a Christian hostage, clutching a rosary. He was exposed when he was unable to recite the Lord's Prayer.
While the fighting has yet to have an impact on the wider national economy, it has brought the largely Christian city of Zamboanga to a halt. It usually does daily business worth about 50 billion pesos ($1.14 billion), said Cholo Soliven, president of the city's chamber of commerce.
Production of sardines and carrageenan, a product from seaweed used in the food industry, has been disrupted while hundreds of homes, and several public and commercial buildings have been destroyed. Flights and ferry services are suspended.
($1 = 43.8650 Philippine pesos)
(Additional Reporting By Manuel Mogato in MANILA; Editing by Robert Birsel)