MUMBAI (Reuters) - Elite Indian commandos fought room to room battles with Islamist militants inside two luxury hotels to save scores of people trapped or taken hostage, as the country's prime minister blamed neighboring countries.
Manmohan Singh blamed militant groups based in India's neighbors -- usually meaning Pakistan -- for the attacks that killed 107 people and wounded 315, raising fears of renewed tension between the nuclear-armed rivals.
Helicopters buzzed overhead and crowds cheered as the commandos, their faces blackened, moved into the Trident-Oberoi, where 20 to 30 people are thought to have been taken hostage and more than 100 others were trapped in their rooms.
Huge flames billowed from an upper floor.
Earlier, explosions rattled the nearby Taj Hotel, a 105-year-old city landmark on the waterfront, as the troops flushed out the last of the militants there. Fire and smoke plumed from an open window.
"The commandos are in control," Dipak Dutta told NDTV news after being rescued. As the troops escorted him through the corridors, they told him not to look down at any of the bodies.
"A lot of chef trainees were massacred in the kitchen."
At least six foreigners, including one Australian, a Briton, an Italian and a Japanese national were killed.
Those who survived told harrowing stories of close encounters. Australian actress Brooke Satchwell, who starred in the Neighbours television soap opera, said she narrowly escaped the gunmen by hiding in a hotel bathroom cupboard.
"There was people getting shot in the corridor. There was someone dead outside the bathroom," the shaken actress told Australian television. "The next thing I knew I was running down the stairs and there were a couple of dead bodies across the stairs. It was chaos."
Commandos had also gathered outside a Jewish center where a rabbi is thought to have been taken hostage, but later apparently decided to hold off from an assault.
A militant holed up at the center phoned an Indian television channel to offer talks with the government for the release of hostages, but also to complain about abuses in Kashmir, over which India and Pakistan have fought two of their three wars.
"Ask the government to talk to us and we will release the hostages," the man, identified by the India TV channel as Imran, said, speaking in Urdu in what sounded like a Kashmiri accent.
"Are you aware how many people have been killed in Kashmir? Are you aware how your army has killed Muslims. Are you aware how many of them have been killed in Kashmir this week?"
WALKING THROUGH BLOOD
Around two dozen militants in their early 20s, armed with automatic rifles and grenades and carrying backpacks full of ammunition, came ashore on Wednesday and fanned out across Mumbai's financial and tourist heart.
They commandeered a vehicle and sprayed passersby with bullets, fired indiscriminately in a train station, hospitals and a popular tourist cafe. They also attacked two of the city's poshest hotels packed with tourists and business executives.
"We threw ourselves down under the reception counter," Esperanza Aguirre, head of Madrid's regional government, said.
"I took off my shoes and we left being pushed along by the hotel staff," she said. "I didn't see any terrorists or injured people. I just saw the blood I had to walk through barefoot."
Singh said New Delhi would "take up strongly" the use of neighbors' territory to launch attacks on India.
"The well-planned and well-orchestrated attacks, probably with external linkages, were intended to create a sense of terror by choosing high-profile targets," Singh said in an address to the nation.
The use of heavily armed "fedayeen" or suicide attackers bears the hallmarks of Pakistan-based militant groups like Lashkar-e-Taiba or Jaish-e-Mohammed, blamed for a 2001 attack on India's parliament.
Both groups made their name fighting Indian rule in disputed Kashmir, and were closely linked in the past to the Pakistani military's Inter Services Intelligence agency, the ISI.
Lashkar-e-Taiba denied any role in the attacks, and said it had no links with any Indian group. Instead, the little-known Deccan Mujahideen claimed responsibility.
"Release all the mujahideens, and Muslims living in India should not be troubled," said a militant inside the Oberoi, speaking to Indian television by telephone.
The attacks were bound to spook investors in one of Asia's largest and fastest-growing economies.
England and India cricket boards canceled their last two games in a seven-match series following the attacks.
Mumbai has seen several major bomb attacks in the past, but never anything so obviously targeted at foreigners.
Authorities closed stock, bond and foreign exchange markets, and the central bank said it would continue auctions to keep cash flowing through interbank lending markets, which seized up after the global financial crisis.
One of the first targets was the Cafe Leopold, a famous hangout popular with foreign tourists.
The attackers then appeared to target British, Americans and Israelis as they sought hostages in the hotels and elsewhere.
The attacks were another blow for the Congress party-led government ahead of a general election due by early 2009, with the party already under fire for failing to prevent a string of bomb attacks on Indian cities.
Strategic expert Uday Bhaskar said the attacks could inflame tensions between Hindus and Muslims. "The fact that they were trying to segregate British and American passport holders definitely suggests Islamist fervor," he said.
Police said they had shot seven gunmen and arrested nine suspects. They said 12 policemen were killed, including Hemant Karkare, the chief of the police anti-terrorist squad in Mumbai.
Schools were closed and a curfew was imposed around the Gateway of India, a colonial-era monument. But train services were running as normal taking people to work in the stunned city.
A top Indian general says about 10 to 12 gunmen remain holed up inside a pair of luxury Mumbai hotels and a Jewish centre.
Maj.Gen. R.K. Huda told New Delhi Television that the rest of the gunmen appeared to have been killed or captured. Authorities say 110 people were killed and more than 300 injured when suspected Islamic militants attacked 10 sites in Mumbai. Indian officials confirmed that Canadians were among the hostages. Foreign Affairs Minister Lawrence Cannon said a number of Canadians were at the targeted hotels, but could not say what their status might be.
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