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Monday, 14 January, 2002, 12:12 GMT
Indian and Pakistani markets rally
A Pakistani soldier n a bunker at the frontline
Markets had earlier been hit hard by the signs that the countries were moving towards war.
Stock markets in India and Pakistan have rallied on Monday amid hopes that the month-long military standoff between the two countries will not escalate into full-scale war.

Investors in both countries welcomed a speech by Pakistani President Pervez Musharraf, in which he promised to clamp down on militant Islamic organisations.

Traders hoped Musharaff's speech and India's guarded welcome would help ease the tense military standoff between the two nuclear powers.

Pakistan's stock market hit a three-month high on Monday, with the Karachi Stock Exchange index gaining 3.9% to 1,427 points.

In India the Bombay Stock Exchange index closed up 1.34% at 3,408 points, after rising as much as 2.5% in early morning trading.

Optimism across the border

"There is some optimism that tensions between the two countries will ease following Pakistan's positive statements," said Ajay Bodke, a portfolio manager with SBI Mutual Fund in Bombay.

"The market is amplifying the positives for the moment while ignoring the negatives," he added.

Indians watch Pervez Musharraf during a live television broadcast
India and the USA both welcomed Musharraf's commitment to curb terrorism

Analysts said more gains were in store if the two armies started pulling back the thousands of troops deployed recently along the border.

"Pakistan has made some bold announcements and if it is followed up with actions, India will have to make efforts to reduce tensions," said the head of equities at a brokerage in Bombay.

The same sentiment is ruling Pakistan's market.

"The local institutions are not selling at this point... they anticipate the market will rise further," said Ashraf Zakaria at AHRL Securities in Karachi.

Long standoff

Markets had earlier been hit hard by fears that the two nuclear powers could be moving towards war.

Tension escalated after an attack on the Indian parliament on 13 December, which Delhi blamed on Pakistan-based militants.

Alongside a military build-up along the border, the two countries scaled down diplomatic ties and cut transport links.

See also:

12 Jan 02 | South Asia
Musharraf speech highlights
12 Jan 02 | South Asia
India cautious on Musharraf
13 Dec 01 | Business
Indian markets hit by shooting
02 Jan 02 | Business
Tension dogs South Asia trade meet
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