Huge Taiwan protest amid China fury

11.30am UPDATE

TAIPEI - In Taiwan's biggest protest, half a million supporters of defeated presidential challenger Lien Chan jammed Taipei on Saturday to dispute his loss, and China said it would not tolerate turmoil on the island.

A sea of yellow raincoats filled the square around the office of President Chen Shui-bian as demonstrators defied a chilly drizzle to demand a recount in last Saturday's poll, which Chen won by 30,000 votes out of more than 13 million cast.

Dressed in black for mourning and standing in front of a huge sign reading "Democracy is Dead," Lien told the crowd he wanted a recount in the island's third ever direct presidential vote and an inquiry into the election-eve assassination attempt against Chen that he has said cost him victory.

In defiant mood, Chen vowed to step down at once if his rival could prove the failed assassination, in which a bullet gashed his abdomen, had been staged and challenged Lien to find the world's best sniper to re-enact the shooting.

"If they can create the same kind of wound, A-Bian will immediately resign from the presidency," he told Lien and his running mate, James Soong.

The re-elected president countered Lien's demands, offering to agree to a recount of last Saturday's disputed vote if Lien Chan filed a lawsuit contesting the result

The crisis has paralyzed one of Asia's most vibrant economies and the stock market dipped 10 per cent last week.

Lien taunted the president. "Our common demands are very simple: immediate recount. I want to ask Mr Chen Shui-bian: what are you afraid of? Stand up!."

Chen was unruffled.

"There is no need for the other side to provide evidence," he told his first news conference since winning a second four-year term, agreeing to a recount by legal process.

CHEN REJECTS FAKING SHOOTING

Chen can agree immediately because he would be the defendant in any such lawsuit, which can now be filed after the election commission officially declared the result on Friday.

But the president's voice shook with rage when he described his humiliation at suspicions he staged the mysterious shooting that many believe swung the closely fought election.

A Nationalist spokesman said the real victim was Lien who had lost the election.

Chen and Vice President Annette Lu were slightly wounded by two bullets from a homemade gun as they campaigned in southern Tainan on the afternoon before the election.

No arrest has been made but police on Friday issued grainy security video of a balding middle-aged man in yellow jacket and blue trousers who left the scene in haste on a motorcycle.

The rivalry between Chen and Lien and the extent of support for the challenger threaten a prolonged crisis. Chen does not have a majority in parliament, making it difficult for his policies to be passed into law.

Beijing said it would not sit idly by if the protests spiralled out of control. China is anxious to prevent pro-independence activists who back Chen's policy of greater sovereignty from using the turmoil to promote their cause.

Taiwan hit back, telling Beijing to mind its own business.

Analysts say Beijing, which regards Chen and his pro-independence ambitions with grave suspicion, clearly would have preferred a victory by Lien, who espouses a more conciliatory policy toward the mainland.

Aware of the risk posed by an angry response from arch-foe China, which regularly threatens to use force to recover an island it claims as a renegade province, Chen held out an olive branch to Lien.

"On Monday, without any conditions, I am willing to meet Mr Lien," he said, adding the offer came in response to a request from the Nationalist Party leader for a meeting.

- REUTERS