(AFP) - Prime Minister Mahathir Mohamad today denied Malaysia's powerful finance minister Daim Zainuddin was resigning, saying he was just taking two months' leave.

"He is not leaving in the first place. Just going on leave," Mahathir told reporters when asked about any resignation plans by Daim.

"He's only not attending cabinet meetings and UMNO (ruling party) supreme council meetings."

Asked if he has a replacement in mind should Daim resign, Mahathir said: "We will cross that bridge when we come to it.

"At the moment we have no plans to appoint a new minister of finance because we've not reached that stage."

Daim is 'tired'

Mahathir, who had earlier declined comment on a possible resignation, said he thought Daim was "tired".

Speculation about a resignation helped erode stock market gains.

The finance minister, widely considered Malaysia's second most powerful man after Mahathir, has often said he wants to quit politics.

There have been frequent rumours of rifts with the premier but both men have said in the past they are able to work with each other.

Mahathir said earlier in the day there was no need for an acting finance minister since Daim was still visiting his office and going through documents and letters.

He said Daim would be represented in cabinet by Entrepreneur Development Minister Nazri Aziz.

A government official said Daim had been on leave for a week.

"Rumours of him being relieved are not true," the official told AFX-Asia , an AFP -affiliated financial newswire.

"He will be in the office as usual and will be clearing (his work). He is just taking leave from official meetings. No one is relieving him."

Speculation rife

The official denied rumours that Daim took leave to protest against the appointment, announced this week, of former central bank governor Ali Abul Hassan Sulaiman as one of Mahathir's economic advisers.

Share prices turned lower in mid-afternoon trade after a brief run-up, with news of Daim's leave undermining already shaky market confidence. The main index closed almost unchanged from yesterday.

"There has been speculation about him resigning for as long as I can remember," said WorldSec Securities senior analyst Peck Boon Soon. "Certainly, people will link this bit of news to (speculation of) his resignation."

Daim, 62, was born in the same village as Mahathir. He was finance minister from 1984 until resigning to return to the private sector in 1991.

In December 1997, as the regional financial crisis battered Malaysia, he was appointed to head the National Economic Action Council to spur growth.

Daim was brought back into the cabinet in June 1998 as special functions minister to promote economic recovery, dealing a blow to then-finance minister Anwar Ibrahim.

Anwar was sacked in September 1998 and subsequently jailed. Daim was appointed finance minister in January 1999.