ISLAMABAD (Reuters) - The United States has released $656 million to Pakistan for some of the costs incurred last year in military operations against Taliban militants, a U.S. embassy spokesman said on Tuesday.

The funds are part of a program called the coalition support fund (CSF), a U.S. program used to reimburse countries that have incurred costs in supporting counter-terrorist and counter-insurgency operations.

Pakistan, a vital ally for the United States as it struggles to stabilize Afghanistan and end the global threat posed by al Qaeda and its allies, has been heavily burdened by the cost of battling Taliban insurgents along its Afghan border.

The Taliban in Pakistan said it planted a bomb in New York’s Times Square at the weekend to avenge the killing in April of al Qaeda’s two top leaders in Iraq as well as U.S. interference in Muslim countries.

Pakistan vowed on Tuesday to help the United States bring to justice a Pakistani-American arrested in connection with the failed attack.

Of the latest CSF amount released, $188 million was transferred last week and another $468 million on Monday, said embassy spokesman Richard Snelsire.

“We are going through other receipts, other claims for the calendar year 2009, and we are working to release those,” Snelsire said.

As a result of its increased military operations, the Pakistan military submitted $2.1 billion in claims on the support fund for 2009, said another U.S. embassy official, who declined to be identified.

“We are processing those claims with the aim of getting as much reimbursed by the end of the government’s fiscal year as we can,” he said, referring to the financial year ending on June 30.

The United States has reimbursed Pakistan about $7.2 billion under the CSF program since 2001, the embassy said in a statement, adding that other U.S. civilian and security aid to Pakistan was worth more than $4 billion in the last three years.

Nuclear-armed Pakistan says the war on militancy had cost it $35 billion in the last eight years.

MARKET BOOST

Early this year, Pakistan complained that the United States was behind on its CSF payments to the tune of about $2 billion. The United States said there had been some delays for administrative reasons.

The last CSF payments Washington had delivered before the one announced on Tuesday had been in January, and included a $349 million reimbursement for all validated claims for the year 2008, the U.S. embassy said.

Pakistan has been struggling to get its economy on track since 2008 when the government agreed to an International Monetary Fund (IMF) loan of $7.6 billion. The loan was increased to $11.3 billion in July last year.

The IMF board is expected to meet in mid-May to consider the next tranche of the $11.3 billion loan. The fifth installment is worth about $1.2 billion. The IMF has been pressing Pakistan to increase electricity tariffs and implement a value-added tax.

Pakistan’s central bank said on Tuesday it had received the $188 million on April 30.

Pakistan's financial markets were boosted by the news of the U.S. funds with the Karachi Stock Exchange's benchmark 100-share index .KSE rising 0.75 percent, or 78.30 points, to end at 10,467.76 on turnover of 126.66 million shares.

“The market witnessed a healthier session today because of inflows from coalition support fund which acted as a catalyst in improving market sentiment,” said Furqan Punjani, an analyst at Topline Securities Ltd.

The rupee firmed early but later eased on import payments and ended almost flat at 84.06/11 to the dollar compared with Monday’s close of 84.05/10.

The rupee has firmed 0.42 percent this year after losing 6.17 percent in 2009 and a 22.12 percent slide in 2008. (Additional reporting by Sahar Ahmed; Editing by Robert Birsel)