TAIPEI Moving to resolve a political deadlock that has battered Taiwan's economy, Premier Chang Chun-Hsiung on Friday suggested a referendum over the future of a controversial nuclear power station.

His proposal came in a meeting with the head of the opposition-dominated legislature, Wang Jin-Pyung, who emerged from the two hour-session declaring it had been "very harmonious and smooth".

A decision last October to halt construction of the island's fourth nuclear power plant has provoked a bitter standoff between President Chen Shui-Bian and the opposition nationalists, who he swept from office after 55 years in power.

Alternatively, Chang suggested that Parliament could pass energy bill.

Such a bill could force the government to resume construction of the $5.5 billion plant outside Taipei, which is one-third completed.

"We hope to use the referendum bill on public policies to resolve the matter," Chang said after the meeting.

Taiwan stocks posted strong gains on Friday, boosted by signs of calm on the domestic political front, and a surprise Central Bank rate cut. The main Taiex index closed up 2.57 percent at 6,049.26.

The nuclear power issue has become the main battleground between President Chen and the nationalists.

Friday's development offered hopeful signs to investors that Chen was now prepared to drop his confrontational approach and seek cooperation with the legislature.

-------- Resolution Some Way Off ---------

Chang's offer follows a parliamentary resolution on Wednesday urging the cabinet to immediately reverse its decision to scrap the plant.

In a new tone of compromise, Chang said he "attached importance" to the resolution.

Chang had earlier enraged opposition lawmakers by saying the resolution was not legally binding.

Speaker Wang, a vice-chairman of the Nationalist Party, said an early solution to the dispute would restore "political stability and economic prosperity".

However, a resolution of the nuclear dispute still appeared to be some way off.

A referendum would set a precedent certain to alarm Beijing, which fears the island, may one day use a popular vote to determine whether to declare independence.

The issue is so sensitive that Taiwan does not yet have a law governing referendums, although such a bill is now working its way through Parliament and has passed its first reading.

Analysts said a third and final reading could take months.

One recent media survey showed more than 40 percent of respondents were in favor of the nuclear power plant and more than 30 percent were against it. The rest abstained.

Beijing considers Taiwan a breakaway province that must eventually be reunified and has threatened to attack if the island declared statehood.

The business community mostly favors building the nuclear power plant, fearing electricity shortages in the future. But environmentalists say Taiwan cannot process nuclear waste or deal with potential nuclear accidents.

As of the end of 2000, losses incurred from the decision totaled T$88.075 billion (U.S.$2.7 billion).

Premier Chang, a member of Chen's anti-nuclear Democratic Progressive Party, took office last October when his predecessor, a member of the Nationalist Party, resigned after falling out with the president over the power station.

The nationalists had spearheaded a drive by a coalition of opposition deputies to oust Chen over the nuclear power dispute, but the campaign has lost steam due to public opposition.

(Reuter)