Markets had been knocked by the political uncertainty
Pakistan's leading share index has risen more than 4% after President Pervez Musharraf said he would resign.
The move was welcomed by investors, who said it would help to dispel the political uncertainty that has dented markets recently.
The Karachi Stock Exchange benchmark 100-share index ended the day up 4.47%.
The Pakistan rupee started to strengthen on the news, after hitting a record low against the dollar on fears that Mr Musharraf would be impeached.
Pakistan's rupee, which has shed around a quarter of its value this year, started to recover on Monday after falling to 76.65 to the dollar.
Azhar Ahmad Batla of WE Brokerage House said: "The market could grow more and the rupee could get stronger against the dollar if the country sees good governance in future."
But he warned: "It could go down if the political scene is again troubled."
Mr Musharraf faces charges of violating the constitution and gross misconduct.
He said he was confident that the charges against him would not stand.
Asad Iqbal, managing director at Ismail Iqbal Securities said the resignation "eliminates all the uncertainty in the market and I think the political uncertainty is coming to an end".
"The government will hopefully start concentrating on the economy," he added.
"From an economic point of view, they have no excuses now and they have to perform."
The economic situation in Pakistan has deteriorated in recent weeks, with inflation reaching its highest in 30 years, the trade deficit widening and reserves falling.
Mr Musharraf was involved in a coup in 1999 that saw former Prime Minister Nawaz Sharif lose power.
On announcing his decision to resign, Mr Musharraf said: "I don't want anything from anybody. I have no interest. I leave my future in the hands of the nation and people."