UPDATE 4-Egypt's Mursi to meet judges over power grab

* Stocks plunge nearly 10 pct on Mursi decree

* "We are back to square one" - trader

* Activists camp for third day

* Mursi to meet Supreme Judicial Council

(Adds details)

CAIRO, Nov 25 (Reuters) - Egyptian President Mohamed Mursi

will meet senior judges on Monday to try to ease a crisis over

his seizure of new powers which has set off violent protests

reminiscent of last year's revolution which brought him to

power.

Egypt's stock market plunged on Sunday in its first day open

since Mursi issued a decree late on Thursday temporarily

widening his powers and shielding his decisions from judicial

review, drawing accusations he was behaving like a new dictator.

More than 500 people have been injured in clashes between

police and protesters worried Mursi's Muslim Brotherhood aims to

dominate the post-Hosni Mubarak era after winning Egypt's first

democratic parliamentary and presidential elections this year.

One Muslim Brotherhood member was killed and 60 people were

hurt on Sunday in an attack on the main office of the

Brotherhood in the Egyptian Nile Delta town of Damanhour, the

website of the Brotherhood's Freedom and Justice Party said.

Egypt's highest judicial authority hinted at compromise to

avert a further escalation, though Mursi's opponents want

nothing less than the complete cancellation of a decree they see

as a danger to democracy.

The Supreme Judicial Council said Mursi's decree should

apply only to "sovereign matters", suggesting it did not reject

the declaration outright, and called on judges and prosecutors,

some of whom began a strike on Sunday, to return to work.

Mursi would meet the council on Monday, state media said.

Mursi's office repeated assurances that the measures would

be temporary, and said he wanted dialogue with political groups

to find "common ground" over what should go in Egypt's

constitution, one of the issues at the heart of the crisis.

Hassan Nafaa, a professor of political science at Cairo

University, saw an effort by the presidency and judiciary to

resolve the crisis, but added their statements were "vague".

"The situation is heading towards more trouble," he said.

Sunday's stock market fall of nearly 10 percent - halted

only by automatic curbs - was the worst since the uprising that

toppled Mubarak in February, 2011.

Images of protesters clashing with riot police and tear gas

wafting through Cairo's Tahrir Square were an unsettling

reminder of that uprising. Activists were camped in the square

for a third day, blocking traffic with makeshift barricades.

Nearby, riot police and protesters clashed intermittently.

"BACK TO SQUARE ONE"

Mursi's supporters and opponents plan big demonstrations on

Tuesday that could be a trigger for more street violence.

"We are back to square one, politically, socially," said

Mohamed Radwan of Pharos Securities, an Egyptian brokerage firm.

Mursi's decree marks an effort to consolidate his influence

after he successfully sidelined Mubarak-era generals in August.

It reflects his suspicions of a judiciary little reformed since

the Mubarak era.

Issued just a day after Mursi received glowing tributes from

Washington for his work brokering a deal to end eight days of

violence between Israel and Hamas, the decree drew warnings from

the West to uphold democracy. Washington has leverage because of

billions of dollars it sends in annual military aid.

"The United States should be saying this is unacceptable,"

former presidential nominee John McCain, leading Republican on

the Senate Armed Services Committee, said on Fox News.

"We thank Mr. Mursi for his efforts in brokering the

ceasefire with Hamas ... But this is not what the United States

of America's taxpayers expect. Our dollars will be directly

related to progress toward democracy."

The Mursi administration has defended his decree as an

effort to speed up reforms that will complete Egypt's democratic

transformation. Yet leftists, liberals, socialists and others

say it has exposed the autocratic impulses of a man once jailed

by Mubarak.

"There is no room for dialogue when a dictator imposes the

most oppressive, abhorrent measures and then says 'let us split

the difference'," prominent opposition leader Mohamed ElBaradei

said on Saturday.

WARNINGS FROM WEST

Investors had grown more confident in recent months that a

legitimately elected government would help Egypt put its

economic and political problems behind it. The stock market's

main index had risen 35 percent since Mursi's victory.

It closed on Sunday at its lowest level since July 31.

Political turmoil also raised the cost of government

borrowing at a treasury bill auction on Sunday.

"Investors know that Mursi's decisions will not be accepted

and that there will be clashes on the street," said Osama Mourad

of Arab Financial Brokerage.

Just last week, investor confidence was helped by a

preliminary agreement with the International Monetary Fund over

a $4.8 billion loan needed to shore up state finances.

Mursi's decree removes judicial review of decisions he takes

until a new parliament is elected, expected early next year.

It also shields the Islamist-dominated assembly writing

Egypt's new constitution from a raft of legal challenges that

have threatened it with dissolution, and offers the same

protection to the Islamist-controlled upper house of parliament.

"I am really afraid that the two camps are paving the way

for violence," said Nafaa. "Mursi has misjudged this, very much

so. But forcing him again to relinquish what he has done will

appear a defeat."

Many of Mursi's political opponents share the view that

Egypt's judiciary needs reform, though they disagree with his

methods. Mursi's new powers allowed him to sack the prosecutor

general who took his job during the Mubarak era and is unpopular

among reformists of all stripes.

(Additional reporting by Yasmine Saleh and Marwa Awad in Cairo

and Philip Barbara in Washington; Editing by Peter Graff and

Philippa Fletcher)

Most Popular in Business