No single option regarding Arroyo could claim to be morally correct, Fernando Capalla, outgoing president of the Catholic Bishops' Conference of the Philippines, said Sunday.

``Therefore, we declare our prayerfully discerned collective decision that we do not demand her resignation. Yet neither do we encourage her simply to dismiss such a call from others,'' said the bishops in a statement, giving some ammunition to her opponents.

``For we recognise that non-violent appeals for her resignation, the demand for a truth commission and the filing of an impeachment case are not against the Gospel.''

Arroyo's presidency hung in the balance awaiting the church's judgment, after the mass resignation of her economic team and desertions of political and business allies last week.

The bishops said the Catholic Church in the Philippines, which played a decisive role in ousting presidents in 1986 and 2001, did not believe in ``intrusion into politics'' under Benedictine, the new pope.

Defying mounting calls on her to quit over allegations of election fraud, Arroyo said Friday she had done no wrong and challenged her opponents to pursue an impeachment case.

But the bishops said Arroyo's apology, for ``a lapse in judgment'' in speaking to an election official while votes were being counted last year, was insufficient.

They backed the creation of an independent commission to look into the allegations of election fraud and corruption in her family, with punishment meted out to the guilty. ``Indeed, with forgiveness is justice,'' they said.

Arroyo, in a brief radio address after the bishops spoke, made no mention of a truth commission or their demand for accountability.

``I shall continue to pray with the Filipino people for true redemption on corruption and evil,'' she said, promising to work with the church and other groups to build a better quality of life and end ``political bickering that is causing such harm.''

Joey Salceda, a congressmen who advises Arroyo on economic policy, said the bishops gave a ``glimmer of hope to a rather bleak position of the administration.''

Arroyo, criticized for being aloof, attended Mass Sunday and then strolled near Manila Bay with relatives, shaking hands, hugging babies and exchanging greetings with passersby.

Arroyo, a US-trained economist and daughter of a former president, has refused to quit, raising the prospect of prolonged uncertainty in a country with a recent history of coup attempts and popular uprisings.

``It is therefore incumbent on the major players in the political crisis to agree on the constitutional mechanism,'' said the Philippine Daily Inquirer in an editorial.

Fidel Ramos, a former general and president who is an influential powerbroker and still in Arroyo's corner, has offered a plan that would give her ``a graceful exit'' while trying to redirect political warfare into constructive reform.

The two houses of Congress would become a constitutional convention under his plan. Arroyo would stay on as caretaker to oversee the change to a parliamentary system, followed by a referendum on a new charter and fresh elections next year.

Financial markets have been on edge, fearing paralysis in Arroyo's agenda to cut the hefty budget deficit and tackle widespread poverty.

REUTERS