Share prices on the Karachi stock exchange soared on Monday amid signs that tensions between India and Pakistan are easing.

The exchange's benchmark 100-share index closed 5% higher at 1,799.06, buoyed by reports that the Indian government is planning to announce measures aimed defusing a stand-off with Pakistan over the disputed territory of Kashmir.

Indian shares posted gains as well - up nearly 2%.

New Delhi is expected to withdraw some of the battleships it has stationed off the west coast of Pakistan, and may also send an ambassador to Islamabad. Pakistani authorities in turn had pledged over the weekend to curb the activities of militant Islamic groups in Kashmir.

War of words

A series of terrorist attacks in India, allegedly carried out by pro-Pakistani groups campaigning for an end to Indian rule in Kashmir, has fuelled an increasingly tense confrontation between the two nuclear-armed nations since the start of the year.

Fears that the stand-off could spill over into all-out war have sent the region's stockmarkets into a tailspin.

The Karachi stock exchange's benchmark index has lost more than 6% of its value in the past month.

Share prices plunged particularly steeply last week when Western governments instructed their nationals to leave the region.

But traders said the new mood of detente is helping to underpin share values.

Turnaround

"Exchange of tense words between the two countries is seemingly over. Instead Indians are talking about options to reduce tensions," said a Karachi-based share dealer.

Indian shares also gained ground on Monday, with the National Stock Exchange 50-share index climbing 1.78%.

Traders in Bombay said investors were taking advantage of the more favourable political climate to snap up blue-chip stocks deemed cheap after recent sharp falls.

The Karachi 100-share index, which has climbed more than 30% since the start of the year, remains one of the best-performing in Asia despite its recent losses.