Sept. 2 (Bloomberg) -- Anwar Ibrahim, Malaysia's former deputy prime minister, was freed after the country's highest court overturned his conviction for sodomy, in a decision that investors said heralds a more liberal political climate.

The verdict, six years to the day that Anwar, 56, was sacked from the government, was handed down by the Federal Court in the Palace of Justice in Putrajaya, Malaysia's administrative capital near Kuala Lumpur.

``Thank God it's over,'' Anwar said. ``I have to give credit to the prime minister for not interfering with the process of justice. We have got to recognize that his predecessor wouldn't have made this judgment.''

Anwar's discharge from a conviction he said was politically motivated comes 11 months after Abdullah Ahmad Badawi succeeded Mahathir Mohamad as prime minister. Abdullah has moved away from his predecessor's policies, pledging more transparency in government and stepping up efforts to woo foreign investors, many of whom were deterred by Mahathir's 1998 sacking of then-finance minister Anwar and the subsequent imposition of capital controls and a currency peg.

``That has to be regarded as a positive move, definitely,'' said Khiem Do, Hong Kong-based head of Baring Asset Management's Asian investment team, which oversees $2.7 billion of Asian assets. ``This is consistent with the trend of Mr. Badawi in terms of trying to bring about a fairer structure.''

The benchmark Composite Index rose 1.5 percent to 840.53 at 3:05 p.m. local time after surging as much as 2.8 percent. The index fell as much as 0.6 percent before the decision.

More Investment

``Foreign investors may not have viewed Malaysia charitably in the past because they think Anwar was jailed unfairly,' said Richard Cohen, senior vice president of institutional equity sales at CIMB Securities Sdn. in Kuala Lumpur. ``Investors may commit more funds to a country they view more positively.''

Anwar was arrested and jailed in September 1998, and has completed a separate sentence for corruption. He appeared in court with a neck brace and in a wheelchair and may fly to Germany for treatment of a spinal illness as early as this week, said Ezam Mohamad Noor, the youth chief of the National Justice Party run by Anwar's wife Wan Azizah Wan Ismail.

``I am happy he has been acquitted,'' said Wan Azizah, who led the National Justice Party in the opposition in Parliament. ``It's like a healing process for our family and the nation.''

Anwar was seen as heir apparent to Mahathir until he was sacked and later jailed on charges of corruption and sexual misconduct. His conviction was criticized by countries including the U.S. and Australia.

Successful Appeal

Anwar said he was a victim of a political conspiracy, and asked the judges to consider the bizarre events during his trial, including the changing of the date of the alleged offence by prosecution witness Azizan Abu Bakar.

The original charge stated that Anwar sodomized Azizan, an official government driver, one night in May 1992. It was later changed to one night in May 1994, and again amended to sometime between January and March 1993.

``We are unable to agree with the finding of the trial judge and Appeals Court that Azizan is a wholly reliable and credible witness,'' Judge Abdul Hamid Mohamad said of the lower court's verdict on the sodomy allegations made against Anwar. ``We are not prepared to uphold the conviction. We therefore allow the appeal and set aside the conviction and sentences.''

Reform

Anwar showed little emotion when the verdict was read. A crowd of about 200 supporters cheered outside as the news filtered out, chanting ``Reformasi'' and ``Merdeka,'' which mean reform and independence respectively in Malay.

In 1999, the government's treatment of Anwar was the defining issue of that year's general election, uniting the country's fractious opposition parties and helping them win 45 seats in parliament.

This year, with Anwar behind bars and Mahathir in retirement, the ruling coalition won more than 90 percent of the seats in Malaysia's parliament. His successful appeal comes after years of legal battles aimed at overturning his convictions.

``I'm surprised by (today's) decision,'' said Garry Rodan of the Asia Research Center at Australia's Murdoch University. ``I don't think I'd be alone in saying it wasn't what I'd expected, and not because I thought it was a case that couldn't be dismissed at all, but because it goes against the whole pattern of the decisions relating to Anwar.''

The prosecution failed to prove the case beyond reasonable doubt, Judge Abdul Hamid said. Two of the three-judge panel found in favor of Anwar's appeal.

``From a foreign perspective it's a signal of change,'' said David Ng, who helps manage the equivalent of $316 million in stocks and bonds at Hwang-DBS Asset Management Sdn. in Kuala Lumpur. ``This heralds a new beginning for the country.''

To contact the reporter on this story: Kate Mayberry in Kuala Lumpur at kmayberry@bloomberg.net

Last Updated: September 2, 2004 03:22 EDT