JNN 19 Sept 2013 Manila : Muslim Rebels fighting against government forces in the southern Philippines appear to be losing ground, as the clashes in the city of Zamboanga entered its 10th day.

About 100,000 people are believed to have been displaced during the ten days of fighting, but now there are reports of troops moving from house-to-house, seeking out the least of the rebels and their hostages.

The military has warned the rebel holdouts that they faced two choices: surrender unconditionally, or “suffer the consequences and feel the weight of the suffering of so many innocent people in your hands,” said military spokesman lieutenant colonel Ramon Zagala.

Army officials on Wednesday told Al Jazeera that 12 soldiers had been killed and 115 others wounded in the fighting with the rebels of the Moro National Liberation Front (MNLF), who seek an Islamic state in the southern Philippines.

The officials also said that government forces killed 120 rebels and now controlled 80 percent of the areas that had been occupied by the MNLF fighters.

More than a 100 people who were held hostage by the rebels escaped on Tuesday, as the rebels engaged in deadly street battles with Philippine troops. Hundreds of other civilians remain trapped, with some being used as hostages or human shields.

The standoff began last week, when hundreds of MNLF fighters invaded Zamboanga in a bid to derail peace talks.

The MNLF faction led by Nur Misuari, a former governor of the Autonomous Region in Muslim Mindanao, is now in a standoff with combined police and military troops in four coastal villages around Zamboanga City.

Zamboanga City is one of the major cities of the Mindanao region — the resource-rich southern part of the Philippines — whose development has lagged behind the rest of the country because of a decades-old conflict between the government and Muslim rebels. The clash comes as the government and another Muslim group — the Moro Islamic Liberation Front — work on a new peace agreement supported by other factions of the MNLF, but not by Mr. Misuari.

The military said on Wednesday it had killed more than a hundred rebels, as it retook Santa Barbara and Santa Catalina in the centre of Zamboanga.

There has also been heavy fighting in Talon and Mampang, in the east of the city, but it was not known how many rebels remained there.

Philippine forces freed scores of civilian hostages on Tuesday as fighting subsided in a port city where hundreds of rogue guerrillas have been battling for more than a week.

The fighting, in which nearly 100 people have been killed, has highlighted lingering grievances in the Catholic-majority country despite its growing economy and an agreement with the biggest rebel group that was meant to bring peace.

The guerrillas who stormed into the city of Zamboanga on Monday last week belong to a breakaway faction of the Moro National Liberation Front (MNLF).

They object to a deal aimed at ending 40 years of conflict signed last October with the main rebel group, the Moro Liberation Front (MILF), and are trying to derail it.

An army spokesman said on Tuesday the guerrillas were fleeing from Zamboanga and heading to outlying islands, off the main southern island of Mindanao.

While the army had freed about 200 hostages since late on Monday, the fleeing rebels had taken captive a team of police officers, including the Zamboanga City police chief, police said.

Armed forces spokesman Lieutenant-Colonel Ramon Zagala told reporters the army had killed 34 rebels in the past 24 hours

“Our forces continue to press on and push them out of the city . We will finish this problem at the soonest possible time,” Zagala said, while sounding a note of caution: “The fighting is not over yet.”

A Reuters witness saw some of the rescued hostages with bruises and other minor injuries as they boarded army trucks and were taken away. Some elderly women wept. All of them looked exhausted.

No impact on financial markets

About 80,000 people have been displaced in the nine days of fighting. Hundreds of homes, and several public and commercial buildings have been destroyed. Flights and ferry services are suspended.

The clashes could tarnish the image of the Philippines as a destination for foreign investment but financial dealers said on Tuesday the violence has not had an impact on markets.

The peso was stable to slightly weaker while and Manila stocks were up 0.4 percent by the early afternoon.

Mindanao has reserves of gold, copper, nickel, iron, chromite and manganese, which account for about two-fifths of total reserves in the country.

But Zamboanga is far from most mining operations, at the end of a peninsula in the southwest of Mindanao, which is about the same size as South Korea.

The fighting has, however, brought the largely Christian city of Zamboanga to a halt.

Six canneries that accounts for 80-85 percent of the country’s sardines production are shut operations and shipment of about 10,000 tonnes of dried seaweed used in the production of carrageenan, a food additive, have been halted.

“If the conflict is prolonged, raw material supplies to local processors and export markets would be disrupted that could result in increased prices,” Maximo Ricohermoso, chairman of the Seaweeds Industry Association of the Philippines.

The Philippines is the world’s second largest producer of carrageenan, exporting more than 100,000 tonnes a year valued at $250 million.