ISLAMABAD, Pakistan - A powerful bomb stuffed in the gas tank of a passenger bus exploded yesterday, killing at least 40 people, mostly Muslims heading home to celebrate Islam's most sacred holiday.

The explosion in eastern Pakistan turned the bus into a fireball, and most of the victims, including six children, were burned beyond recognition.

Police feared the death toll could reach 60, because many of the 26 who were injured were in critical condition and more remains may be found in the charred shell of the 52-seat bus.

The bus, which was overcrowded with passengers preparing for Eid al-Adha, the Feast of Sacrifice, exploded in the bustling marketplace of Bhai Pheru, about 15 miles east of Lahore.

No one claimed responsibility for the explosion.

''There were two explosions. The first one and then a second one almost immediately, I guess when the petrol (gas) tank exploded,'' said Ata Dada, a paramedic whose first aid station was about 200 yards away from the explosion.

Dada said he was helpless to stop the fire. He could see the victims inside the bus, some still alive, screaming for help.

But there was no fire extinguisher nor a nearby fire department to douse the blaze.

''We couldn't do anything but watch,'' said Dada, his voice trembling. ''People inside were screaming. It was so horrible.''

It was nearly four hours before the bodies could be removed.

''Everything was so hot. We couldn't touch anything,'' he said. ''No one was recognizable.''

Another paramedic, Mohammed Iqbal, said 36 people died immediately and another four died en route to the hospital.

The ashes of some victims were buried later in the day in a single coffin in a treeless graveyard near the town. Relatives of the victims and thousands of people from surrounding villages came to mourn. Wails and sobs interrupted the prayers for the dead.

Prime Minister Benazir Bhutto condemned the attack, calling it ''a heinous act (that) showed they had no respect even for the most pious day of Islam.''

The explosion was the second in as many weeks in Punjab state, Pakistan's most populous province which borders on India's Punjab region.

Six people were killed when a bomb ripped through the outpatient department of a cancer hospital in Lahore on April 14. The hospital was built by cricket star Imran Khan, and many believed the explosion was a warning to him to stay out of politics.

At the time, Bhutto said her government had received intelligence reports warning of possible explosions in Punjab and in particular in the capital of Lahore.