Pakistani stocks have fallen sharply after a coalition of hardline Islamic parties turned in a strong performance in Thursday's parliamentary elections.

The market has taken it negatively as it might affect current policies

Shuja Rizvi IP Securities

The Karachi Stock Exchange's KSE 100 index closed down 67.7 points, or 3.2%, at 2,031.2.

Early counting showed the Mutahidda Majlis-e-Amal (MMA), or United Action Front, alliance of six religious parties have capitalised on opposition to Pakistan's partnership with the US in the bombing of Afghanistan and in the war on terror.

The MMA is expected to make up a small but significant block in parliament.

"The foreign policy of the religious parties is in total contrast with the Musharraf's policy," said Mohammad Sohail, Research Head at Investcap Securities.

"So investors are concerned how affairs will be managed."

Stock markets in India, with which Pakistan almost went to war earlier this year over Kashmir, gained one percent on unrelated factors.

Reform fears

"The results achieved by the religious parties in the elections was a bit unexpected for the investors," said Shuja Rizvi of IP Securities.

"The market has taken it negatively as it might affect current policies."

The KSE, one of the best performing stock exchanges this year after gaining over 64%, reached a seven-year high on Wednesday, closing at 2,098.9.

Investors predicted President Pervez Musharraf would retain enough power to proceed with his reforms programme.

The KSE is one of Asia's smallest markets with capitalisation of $8bn.

Heavy US investment and foreign aid, increased remittances from expatriate workers and low interest rates have also help push the market up.