Pakistani soldiers rescued scores of students and staff from a military-run college who were abducted by Taliban militants in the northwest of the country, a military spokesman said.

The abduction took place yesterday as the Pakistani army pressed on with an offensive against the Taliban in the Swat valley, in another part of the northwest.

Separately, a high court ordered the release of Hafiz Mohammad Saeed, the founder of an outlawed militant group which was accused of organising an assault on the Indian city of Mumbai in November, his lawyer said.

India, which urged nuclear-armed rival Pakistan "dismantle the infrastructure of terrorism" after the Mumbai attacks killed 166 people, said it was "unhappy" with Saeed's release.

It is also likely to dismay the United States which has been alarmed by deteriorating security in an ally whose help it needs to defeat al Qaeda and subdue the Taliban in Afghanistan.

Military spokesman Major-General Athar Abbas said the Taliban were taking the kidnapped students to the South Waziristan region, a militant stronghold on the Afghan border, when soldiers challenged them on a road and a clash erupted.

"Under cover of the firing the militants escaped and we have recovered them all," Abbas said, adding 71 students and nine members of staff had been rescued.

College principal Javed Iqbal Piracha, who was among those rescued, said 10 to 15 students appeared to be still missing.

Taliban fighters seized the students' convoy heading home for the summer holiday near the Afghan border in North Waziristan.

There are several Taliban- and al-Qaeda-linked groups based in North and South Waziristan in a loose alliance with the Taliban in Swat. South Waziristan is also the base of Pakistani Taliban leader Baitullah Mehsud.

South Waziristan is also the base of Pakistani Taliban leader Baitullah Mehsud and officials have said an offensive there was expected after Swat was secured.

Brigadier Zahid Abdullah, who led the rescue and said he believed everyone had been recovered, said the militants might have wanted to use the students as human shields.

Stock market dealers said investors were encouraged by the rescue of the students but the 100-share index ended 1.18 percent lower at 7,125.11 on worry about taxes being imposed on brokerage services in the new fiscal year.