updated 2/5/2008 12:47:39 PM ET 2008-02-05T17:47:39

The U.S. Peace Corps said Tuesday it was pulling its remaining volunteers from Kenya following weeks of violence over a disputed election.

While no Peace Corps volunteers have been targeted in the fighting, the Washington-based group has decided to temporarily suspend its operations, said spokeswoman Amanda Beck. She said the remaining 58 volunteers were being pulled out. Another 144 volunteers were sent home in January after the violence first erupted.

Protests since the Dec. 27 election have degenerated into ethnic clashes, with much of the anger aimed at President Mwai Kibaki’s Kikuyu tribe, long resented for dominating politics and the economy. At least 1,000 people have died and 300,000 have been chased to refugee camps. Ugandan authorities said 12,000 Kenyan refugees had crossed the border since the crisis began.

Business leaders warned Tuesday of an economic downturn.

The violence “has significantly damaged the domestic economy,” Boston-based consultancy firm Global Insight said in a report. It downgraded its 2008 economic growth prediction to 4 percent from its previous estimate of 6.1 percent.

Former U.N. Secretary-General Kofi Annan met with business leaders to hear their concerns before chairing another session of peace talks between Kibaki and Raila Odinga, the opposition leader who says the president stole the election. Foreign and local observers have said the vote was rigged.

Kenya had been the region’s economic powerhouse, home to a booming tourism industry and the hub for numerous multinational companies doing business in Africa. Now, foreign firms that operate here are considering their options.

“Let’s face it, many firms don’t have to manufacture here in Kenya,” said Steven Smith, the managing director of U.S. battery maker Eveready’s Kenya operations. “There are questions already being asked, why are you there? What gives you the advantage to stay in Kenya?”

The Kenya Private Sector Alliance estimates that over the next six months up to 400,000 Kenyans are likely to lose their jobs as part of the economic fallout. It also projects that businesses will lose up to $3.6 billion over the next six months, even if the crisis is resolved immediately.

Thousands more fled their burned homes Tuesday in western Kenya, where at least seven people have been killed in nine days of battles between youths from rival tribes, armed with bows and arrows and machetes.

Kibaki and Odina have already agreed to take immediate action to end the violence, help those displaced return safely to their homes, and have welcomed Annan’s plan for a truth and reconciliation commission with local and international jurists.

But Annan predicted talks would be tough as the rivals tackle the political disputes that set off the crisis. He was also searching for a new chief mediator after Cyril Ramaphosa, a South African businessman, withdrew Monday because of objections by Kibaki’s government and ruling party.

U.S. Ambassador Michael Ranneberger, in an interview published Monday, said Washington respected the Annan-led talks but expressed reservations.

“There is serious concern whether leaders can come together to work out a solution acceptable to Kenyans,” he was quoted as telling The Standard daily. “The postelection (situation) revealed deep underlying problems that must be addressed as well.”

He also repeated a U.S. decision to deny visas to politicians who foment violence or who work against peace.

“It is important that Kenyans know that people who do not cooperate to achieve peace and those responsible for violence will not be viewed positively. We have identified a number of people that could potentially be subject to these,” Ranneberger said, but gave no details.

Britain announced it would double aid to Kenya, providing $2.4 million for humanitarian relief.

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