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Thursday, 20 September, 2001, 13:31 GMT 14:31 UK
Pakistani traders wary
Karachi brokers
The Karachi Stock Exchange has shed more than 9%
By the BBC's Manuela Saragosa

Financial market regulators in Pakistan have decided that the country's stock markets should reopen for trading on Monday.

Pakistan's three stock markets in Karachi, Lahore and Islamabad have not traded since last Monday on concerns that expectations of a US military retaliation will prompt heavy selling.

Following the suicide passenger jet attacks on the US last week, the benchmark 100-share index of the Karachi Stock Exchange shed more than nine per cent as investors pulled their cash out of shares.

Pakistani regulators are concerned that a sell-off will be even more intense now, as anxiety grows ahead of expected US attacks on neighbouring Afghanistan.

The decision to suspend trading was taken on Sunday.

Cash-flow problem

Officials at the Karachi Stock Exchange told the BBC sharp falls could be controlled by placing caps on share movements.

Trading in shares which fall more than a pre-determined percentage, for example, could be suspended.

But, they say, the biggest risk is posed by potential liquidity problems in the country's financial markets.

Measures have been taken to avoid a cash shortage but concerns persist that declines in stock prices may be exacerbated because there will not be enough funds around to buy shares.

An attempt by the government to get local institutions to prop up the share market in August delivered only limited support.

On the other hand regulators and exchange officials are keen to send a positive signal out to investors by reopening for trade.

After all, an extended shutdown of trading may be interpreted as heavy-handed interference by the government.

See also:

12 Sep 01 | South Asia
US attack hits Karachi market
12 Sep 01 | Business
Q&A: The global economic impact
11 Sep 01 | Business
Market turmoil after US attacks
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