BBC's Abbas Nasir: the effect of sanctions was "biting deeply"

The decision opens the way for the two countries to receive loans and investments from American financial institutions, as well as military training.

The details of the announcement were released on the eve of a meeting between President Clinton and Pakistan's Prime Minister Nawaz Sharif in Washington.

The talks are aimed at repairing relations damaged by Pakistan's tests. The two leaders are also discussing regional security and nuclear weapons proliferation.

President Clinton has waived sanctions until 21 October 1999

Welcoming the decision, Mr Sharif said the sanctions, were "unjustifiably imposed on Pakistan" which had been forced to react to India's nuclear detonations.

"We sincerely hope that President Clinton's decision would prove to be a harbinger for the complete lifting of sanctions," Mr Sharif added.

He also called for greater US involvement in resolving tensions in South Asia, in particular the "festering dispute" over Kashmir.

Friendship terms

Mr Sharif is also meeting World Bank officials and the International Monetary Fund during the Washington visit.

While Pakistan's economy has been heavily hit by the sanctions, Mr Clinton's decision could now release a $5.5bn IMF bailout.

White House officials have also suggested that President Clinton could reschedule for next year his cancelled trip to India and Pakistan.

Correspondents say President Clinton wants Pakistan to adhere to international commitments on nuclear non-proliferation.

The BBC's Abbas Nasir in Washington said: "Nawaz Sharif has come here looking for more relief but the Americans are quite clearly determined to push through their non-proliferation agenda".