Cotabato City, Philippines (dpa) - Philippine police have recovered a homemade bomb outside an elementary school in a southern province, a regional military spokesman said Friday.

Major Armand Rico said police officers found the explosive device late Thursday near the gate of the school in Carmen town in North Cotabato province, 960 kilometres south of Manila.

Gaza- Two underground tunnels under the Gaza-Egypt border used for smuggling collapsed Thursday, killing two Palestinians, medical officials said.

The fatalities were named as Ibraheem Zu'rob, 19 and Ahmed Slaikh, 23. Officials at Abu Yousef al-Najjar hospital said they were already dead when they were brought to the hospital.

Tunnel collapses under the Gaza-Egypt border have become more frequent of late as Egypt steps up its efforts to combat the smuggling of goods and weapons into the salient.

Iligan City, Philippines - One soldier was killed and eight were wounded in an ambush by Muslim separatist rebels in the southern Philippines, an army spokesman said Thursday.

The soldiers were attacked Wednesday along a highway in Calanugas town in Lanao del Sur province, 810 kilometres south of Manila, Lieutenant Colonel Agane Adriatico said.

Adriatico, a regional army spokesman, said the soldiers were responding to intelligence reports that 100 Moro Islamic Liberation Front (MILF) rebels had occupied parts of the highway.

Manila - Philippine stocks continued to freefall on Thursday, after a slight recovery a day earlier, with the main index plunging 4.25 per cent.

The Philippine Stock Exchange's 30-share composite index lost 104.63 points to close at 2,352.37 from Wednesday's finish of 2,457.00.

A total of 1.81 billion shares worth 2.15 billion pesos (45.74 million dollars) were traded.

Losers swamped gainers 117 to 14, with 23 issues unchanged.

Manila - Two top Philippine banks have set aside 94.7 million dollars in provisional funds to cover possible losses arising from the collapse of the US investment bank Lehman Brothers Holdings Inc.

Both the Metropolitan Bank and Trust Co (Metrobank) and Banco de Oro have exposure in Lehman Brothers.

The central bank also offered emergency lending to banks that might need funds but stressed that it was not worried because it believed Philippine banks could weather the crisis after implementing reforms after the 1997 Asian financial crisis.

Central bank Deputy Governor Diwa Gunigundo on Wednesday urged depositors not to panic.

Cotabato City, Philippines - A United Nations official on Wednesday expressed alarm over the growing number of people displaced by fighting between the military and Muslim separatist rebels in the southern Philippines.

Stephen Anderson, country director for the World Food Programme (WFP), visited evacuation centers in Maguindanao province, 960 kilometres south of Manila, one of the areas affected by the military's offensive against Moro Islamic Liberation Front (MILF).

Anderson said the WFP has so far dispatched some 1,700 metric tons of rice for distribution to 400,000 people displaced by the hostilities since August.

But he noted that more assistance was needed as the number of evacuees was continuing to rise.