|PIC1|Kenya's President Mwai Kibaki offered to talk to political rivals on Thursday as corpses lay in streets and smoke billowed from burning slums after a day of battles between police and anti-government protesters.

"I am ready to have dialogue with the concerned parties once the nation is calm," Kibaki said, striking a more conciliatory note than his supporters' recent rhetoric.

A week of bloodshed since a December 27 election has killed more than 300 people and threatens to wreck Kenya's reputation as one of Africa's most promising democracies and strongest economies.

|PIC2|"I am deeply disturbed by the senseless violence instigated by some leaders," Kibaki told reporters on the lawn of his residence. "Those who continue to violate the law will face its full force."

U.S. President George W. Bush urged Kenyans to refrain from further violence and called on Kibaki and opposition leader Ralia Odinga to "come together" to resolve the dispute.

"It's very important for the people of Kenya to not resort to violence," Bush told Reuters in an interview on Thursday.

Asked whether Kibaki and Odinga should share power, Bush said, "I believe that they have an opportunity to come together in some kind of arrangement that will help heal the wounds of a closely divided election."

The European Union urged them to form a coalition government.

Currency and stock trading was halted in Nairobi on Thursday, with the shilling and share prices both down about five percent since the troubles began.

The disputed polls have unleashed vicious tribalism around Kenya and both sides accuse the other of ethnic cleansing.

"This is genocide being conducted by the political class illegally sitting in State House," Odinga said after taking journalists to view corpses with gunshots at a city mortuary.

He named two key Kibaki allies as backing a Kikuyu gang behind some of the killings. On Wednesday the government accused Odinga's Orange Democratic Movement (ODM) of organised genocide.

After police clashed for hours in Nairobi with thousands of protesters angered by Kibaki's victory, the opposition called off a planned rally in the city's Uhuru (Freedom) Park, saying it wanted to save lives.

The opposition vowed to try again on Friday.

"The rally is on for tomorrow," spokesman Salim Lone said.

Shots cracked out as police fired over the heads of protesters on Thursday morning and fires raged in the slums.

Flames burst from a large crucifix suspended from the roof of a burning church in Kibera, one of Africa's largest slums, and a hotbed of support for Odinga.

Reuters reporters saw at least four bodies lying in the dust near the Mathare slum. Three were beaten and slashed to death by mobs and the fourth killed by a falling power cable.

The World Bank said the violence could threaten Kenya's impressive economic gains and harm neighbouring countries that depend on it as a business hub.

INVESTIGATION

Warning that Kenya was "quickly degenerating into a catastrophe of unimaginable proportions," Attorney General Amos Wako said both sides should agree on an independent person or body to carry out "a proper tally" of votes from the election.

"Such an exercise will go a long way in assuaging the inflamed passions of people," Wako said.

But he added that while the tally should help political mediation, only a court could overturn Kibaki's win.

From dawn, riot police were out in force as the city, virtually deserted by workers, was transformed into a battleground. Several columns of protesters surged out of slums towards the city-centre, singing the national anthem, chanting "Peace" and waving twigs and leaves.

When confronted with police lines, they at first sat or kneeled in the road. As tempers rose, they began burning cars and buildings.

Police responded with teargas and water cannons, firing in the air when the crowd knelt down and taunted: "Kill us all", a Reuters witness said.

Protester Julius Akech yelled: "This is dictatorship now."

The daily violence has shocked world leaders and choked supplies of fuel and other goods to a swathe of central Africa.

Pro-Kibaki legislators called for Odinga and others to be charged by the International Criminal Court with "ethnic cleansing and genocide".

International figures urged talks in a nation previously known as an African peacemaker rather than a disaster zone.

"This is a country that has been held up as a model of stability. This picture has been shattered," said South African Nobel peace laureate Archbishop Desmond Tutu, in Kenya to try to start mediation. "This is not the Kenya that we know."

In rural areas, the unrest has touched off deep ethnic tensions. In an area where 30 members of Kibaki's Kikuyu tribe were killed in a church torched by a mob, young men with machetes manned roadblocks and hunted their enemies.

Protesters almost overwhelmed police as they tried to enter the centre of Kisumu, an opposition stronghold in western Kenya already ravaged by riots and looting.

Kikuyus, long dominant in politics and business, were targeted in initial clashes, but revenge killings -- including some by the Kikuyu Mungiki criminal gang -- are on the rise.

While most foreign observers said the vote fell short of democratic standards, Uganda's President Yoweri Museveni was the first African leader to send congratulations to Kibaki.

But at the same time, Kampala closed its borders. Hundreds of refugees, however, were allowed to cross into Uganda, taking shelter in schools and churches.

Kenyan media united in pleas for peace, with every major newspaper running the same front-page headline: "Save Our Beloved Country".