The violence, though restricted to only some parts of the city, has once again raised concerns over the government's failure to establish its writ, and has worried investors, analysts said.

"Given the worsening law and order situation, most investors preferred to trim their holdings and not take fresh positions in the market," said Mohammed Sohail, chief executive of brokers Topline Securities.

There were also reports on local media that the Muttahida Qaumi Movements (MQM), the city's dominant political force, may announce a two-day strike to protest against the violence, which added to investor concerns, dealers said.

The Karachi Stock Exchange's benchmark 100-share index ended 0.74 percent, or 92.15 points, lower at 12,441.40, on turnover of 65.1 million shares.

In the currency market, the rupee ended flat at 85.82/87 to the dollar, as steady dollar inflows matched the demand for the currency from importers.

The rupee hit a record low of 86.50 in May, and dealers said the local unit is expected to stay largely stable in the medium term because of increased remittances from Pakistanis working abroad.

According to official data, remittances topped $10 billion for the first time, hitting $10.1 billion in the first 11 months of the 2010/11 fiscal year, an increase of 25.20 percent compared with the same period last year.

In the money market, overnight rates were unchanged at 13.90 percent in tight liquidity, dealers said.

Copyright Reuters, 2011