September 22, 2008 / 10:58 AM / 11 years ago

Marriott bombing pressures Pakistani markets

KARACHI (Reuters) - A weekend suicide bomb attack which killed 53 people in Islamabad knocked the rupee to a record low on Monday and analysts said they expect Pakistani markets to remain under pressure due to acute concerns over security and the economy.

Dealers said tension between Pakistan and its largest donor, the United States, over U.S. military action against militants on Pakistani territory added to concerns.

Pakistani troops fired on two U.S. helicopters that intruded into Pakistani territory on Sunday night, forcing them to turn back to Afghanistan, a security official said.

Dealers said the rupee traded as low as 78.55 rupees to the dollar and closed at 78.21/28. It ended at 78.15/25 on Saturday.

The rupee has lost 21.2 percent against the dollar since the beginning of the year, largely due to the impact of soaring oil import bills on Pakistan’s widening current account deficit.

“Dollar outflows are bleeding us dry and Saturday’s incident has reinforced negative views held by people for a while,” said a currency dealer referring to the Marriott bombing.

Analysts said Saturday’s bombing would be a blow for foreign investment, especially if it marked the beginning of a new phase of militant violence.

“If this were to become a pattern, only then would it be a final straw for foreign investors,” said Asif Qureshi, head of research at Invisor Securities Ltd.

“In the near-term, investor sentiment, which is already running weak, will be further dented. Now Pakistan needs to depend more on local investment and multilateral funds.”

An International Monetary Fund team came to Pakistan this month for a review and left on Monday, two days before its scheduled departure.

An IMF spokesman said the team had completed its review and declined to comment about Saturday’s bomb attack.

Pakistan has already ruled out seeking an IMF package, trusting in its own ability to implement policies to bring down the external and fiscal deficits.

Inflation is running at over 25 percent, and total foreign currency reserves have slid below $9 billion, analysts said.

Dealers said the current account and trade deficit numbers for August were alarming and should lead to calls for action from regulators and policymakers for emergency funding, curtailing imports and restoring confidence.

The current account deficit widened to $2.572 billion in July and August, which is equivalent to about 1.6 percent of gross domestic product (GDP), and compares with a full-year target of 6.0 percent of GDP.

Total foreign currency reserves stood at $8.91 billion on September 13, barely enough to cover two months of imports, according to analysts.

STOCKS

Pakistan’s main stock index ended flat on Monday, as the market remained artificially protected by a floor on the index imposed by authorities weeks earlier.

The Karachi Stock Exchange benchmark 100-share index ended at 9,200.22 points, less than 56 points off a floor established by the KSE on August 28.

Volume was 1.9 million shares, the lowest ever traded in a full trading session. The KSE-index has shed 34.6 percent since the beginning of the year and is 41.5 percent lower than a life high set in April.

The KSE board will review the floor on Thursday. Dealers said authorities were unlikely to remove the floor in the short-term.

The cost of buying protection against Pakistani debt defaulting rose after Saturday’s bomb attack.

Five-year CDS (credit default swaps) was not traded but a dealer said it was quoted at 1,500 basis points, about 50 bps wider than Friday.

Editing by Mike Peacock

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