Pakistani stocks end lower; rate cut discounted

KARACHI, Nov 25 - Pakistani stocks ended slightly lower on Wednesday as the market remained unmoved by a widely expected interest rate cut the previous day, dealers said

The State Bank of Pakistan cut the key policy rate by 50 basis points to 12.5 percent for December and January to spur economic growth, but it remained cautious because of the country's security problems. [ID:nSIN518291]

The Karachi Stock Exchange <.KSE> benchmark 100-share index ended 0.32 percent, or 29.13 points, lower at 9,204.57 on turnover of 59.72 million shares.

"The market had expected at least a 50 basis points rate cut," said Asad Iqbal, managing director at Ismail Iqbal Securities Ltd.

"Investors needed more and we would have seen a positive rally had the central bank cut the rate by 100 basis points."

The central bank said it did not cut the rate by more as it was maintaining a cautious approach because of the prevailing security situation which could lead to "fiscal uncertainties".

The army is attacking militants in northwestern strongholds. The militants have responded with bombs in towns and cities.

Dealers said investors were sidelined ahead of a long weekend for the Eid al-Adha holiday. Markets will be closed from Friday to Monday.

The KSE-100 index has gained 60.0 percent this year after losing 57.9 percent last year.

In the currency market, the rupee ended at 83.50/57 to the dollar compared with Tuesday's close of 83.48/59. Dealers said the cut in the policy rate had also been discounted in the forex market.

"The 50 basis point reduction was mostly priced into the market," said a currency dealer.

"There is little reason for the rupee to strengthen from here."

The rupee has been supported by remittances from Pakistanis working overseas but dealers expect demand for dollars from importers will weaken the Pakistani currency.

According to the latest official data, remittances from Pakistanis working overseas rose 32 percent to $3.1 billion in the first four months of the 2009/10 fiscal year.

The rupee has weakened 5.26 percent this year after losing 22.12 percent last year. (For more Reuters coverage of Afghanistan and Pakistan, see: http://www.reuters.com/news/globalcoverage/afghanistanpakistan) ((E-mail: sahar.ahmed@thomsonreuters.com; Reuters Messaging: sahar.ahmed.reuters.com@reuters.net; Karachi newsroom: +92-21 3568 5192)) (If you have a query or comment about this story, send an e-mail to news.feedback.asia@thomsonreuters.com)