India?s Congress party raced to form a new government yesterday with former finance minister Manmohan Singh as prime minister after Italian-born party chief Sonia Gandhi rejected fresh appeals to take the job.

Singh, the father of India?s free-market reforms, was expected to claim power at the head of a coalition once party members accept Gandhi?s decision to withdraw to protect the new government from a damaging campaign over her foreign birth.

?So far, she has not accepted our demand,? said Congress official Oscar Fernandes, after party leaders quit their party posts and marched to Gandhi?s house to press her to reconsider.

A Congress MP and an ally who separately met Gandhi on a day of dramatic developments said they expected Singh to meet President Abdul Kalam yesterday evening to say he was ready to form the new government.

?The claim would be made by the end of the day?, Sitaram Yechury, a spokesman for the Communist Party of India (Marxist), told reporters after meeting Gandhi.

The unassuming Singh has been front-runner to lead the world?s biggest democracy since Sonia, the widow of assassinated former prime minister Rajiv Gandhi, stepped aside on Tuesday.

?Individual members are being asked to support a resolution for Manmohan Singh?, a Congress leader told Reuters. ?He is the automatic choice if Sonia does not accept.?

The Congress received a further boost after a southern regional group said it would join its coalition government, instead of simply supporting it from the outside.

?Yes, we will?, Dravida Mun-netra Kazagham leader M. Karunanidhi said when asked if his party would take cabinet posts.

Kalam?s approval of a Con-gress-led coalition is considered a formality because the party is assured of the support of more than 320 members of the new 545-seat parliament.

India?s markets, spooked by anti-reform comments by left-wing parties that are supporting Con-gress without formally joining its coalition, welcomed the prospect of Singh?s rise to power. He would become India?s first Sikh prime minister.

The main stock index closed 2.65 percent higher, crossing the psychological 5,000 level, on hopes Singh would lead Asia?s third largest economy.

The scholarly 71-year-old commands respect for his integrity and intellect. But he will need sharp political skills to manage party leaders ? who have looked only to the Nehru-Gandhi dynasty to lead ? and disparate allies with their competing demands.

?The father of India?s reform programme rising to the prime ministership would be very positive from the standpoint of the market?, said P K Basu, head of Robust Economic Analysis. ?But I would caution against excessive euphoria since Dr Singh as an economic reformer is well regarded, but his abilities as a political manager are untested.?

The Communist Party of India (Marxist), which has pledged support to a Congress-led coalition, said the overriding concern was to stop Hindu nationalists from returning to power and it would support even Singh.

?He is one of the most decent persons, a knowledgeable economist, and I will opt for him any time over any person in the Bharatiya Janata Party?, said communist Somnath Chatterjee.

<B>Distraught supporters</B>

But hundreds of distraught Congress workers blocked trains and held street protests to press their demand that Gandhi accept leadership of the nation of more than one billion people.

?At this moment we can only see Sonia as our prime minister. We cannot think of anyone else but her?, said Bhawar Singh Rajpurohit, a senior Congress party leader in Bombay.

Congress workers on a vigil outside Gandhi?s New Delhi home smashed window-panes in the adjacent party office to express anger at her refusal.

?It is a difficult situation, Congress workers are not in a mood to listen?, said Ambika Soni, a Congress spokeswoman and a Gandhi adviser. ?But Sonia is equally adamant.?

Gandhi would have been India?s first foreign-born prime minister and the fourth from the Nehru-Gandhi clan after founding leader Jawaharlal Nehru, his daughter Indira and her son Rajiv.

The Hindu nationalist-led BJP, stunned by its election defeat, has renewed its anti-Gandhi campaign, saying her foreign birth disqualified her from becoming prime minister, despite the fact she is an Indian citizen. The constitution does not ban foreign-born individuals from the office.