CAIRO (AFP) - Egypt's president-elect Mohamed Morsi began selecting a new government on Monday as his supporters pursued a sit-in to pressure the ruling military to hand over full powers to the Islamist.

After a tight race in which Morsi was forced to reach out to pro-democracy groups, the former Muslim Brotherhood politician is expected to include ministers who will have the support of his movement's election allies.

Despite the historic victory in which Morsi was on Sunday declared the first civilian president of Egypt, he still has to contend with a ruling military seeking to retain broad powers and with a precarious economy.

The Muslim Brotherhood that fielded Morsi in the election to replace ousted leader Hosni Mubarak has said it would press on with a sit-in to pressure the ruling generals to relinquish more powers to Morsi.

On Monday, Morsi, once a prisoner under Mubarak's regime, was moving into the presidential palace and had already begun talks to appoint his new cabinet, days before the military is scheduled to transfer power, a spokeswoman said.

"He has already started, with a list of names he is considering. He says he will declare the cabinet soon," said Nermine Mohammed Hassan, a campaign spokeswoman.

The military-appointed cabinet is expected to offer its resignation on Monday, state media reported, adding that it would assume caretaker responsibilities until Morsi is sworn in.

An official with the military, which took charge after Mubarak's overthrow in the uprising early last year, told AFP the transfer is still scheduled for June 30.

A senior Brotherhood member, Sobhi Saleh, told the official news agency that Morsi would take the oath in front of the constitutional court instead of in parliament, which the military disbanded earlier this month.

In Cairo's Tahrir Square, Muslim Brotherhood cadres pressed on with a days-long sit-in aimed at pressuring the military to repeal decrees granting it the disbanded parliament's powers and a broad say in security policies.

The military also has control over the budget drawn up by the outgoing cabinet, which the Muslim Brotherhood-dominated parliament had strongly disputed.

Morsi, who defeated his rival and ex-Mubarak premier Ahmed Shafiq with 51.7 percent of the vote, quickly moved to allay domestic and international concerns over the Islamists' victory in the Arab world's most populous country.

The Cairo stock exchange briefly suspended trading on Monday after a more than six percent increase amid optimism that the official announcement of a president would help stabilise the country.

In a speech on Sunday after the electoral committee announced his victory, Morsi vowed to be president to all Egyptians and appealed for national unity after the divisive election.

The fiercely pro-Palestinian leader also pledged to honour Egypt's international treaties, which include a 1979 peace treaty with Israel.

But in an interview with the Iranian Fars news agency hours before his victory was declared, Morsi said he wanted to improve ties with Iran, Israel's regional arch-enemy, and reconsider the treaty with the Jewish state.

Most candidates in the May and June presidential elections had pledged to revise the treaty to allow Egypt more sovereignty in the Sinai Peninsula, which Egypt regained from Israel following the 1979 Camp David Accords.

Egypt is allowed only a limited number of troops in the peninsula.

He added that the return of Palestinians to homes lost in the 1948 and 1967 wars was "very important." Israel has called on the Palestinians to drop that condition in any peace negotiations.