According to media reports, the government may decide to remove the capital gains tax. A 10 percent capital gains tax is imposed on stocks held for six months or less and 7.5 percent on stocks held between 6 months to a year.

"Investors are hopeful that the government might announce a removal of capital gains tax," said Sajid Bhanji, director at Arif Habib Ltd.

KSE benchmark 100-share index ended 1.16 percent, or 140.91 points, higher at 12,264.06 on turnover of 108.84 million shares.

In the currency market, the rupee eased to 85.92/98 to the dollar from the close of 85.90/95 a day earlier, thanks to steady dollar demand from importers.

The rupee hit a record low of 86.50 last week and dealers said the local unit may face pressure in days ahead amid increased demand for dollar for import payments and a bleak outlook.

The rupee has lost more than 1.5 percent of its value since then, almost the same as its total loss of 1.53 percent in 2010.

The rupee's slump to a record low comes after it rose to an 11-month high in April, suggesting its outlook has weakened because of uncertainty following bin Laden's death.

In the money market, overnight rates ended at 11.90 percent, compared with the previous day's close of between 13.75 and 13.90 percent, due to low participation in the treasury bill auction on Wednesday.

The central bank has set a target of 175 billion rupees ($2.03 billion), and dealers said there was participation amounting to 140 billion rupees ($1.62 billion).

Copyright Reuters, 2011