KSE benchmark 100-share index ended 0.80 percent, or 95.56 points, lower at 11,846.16, its lowest close since May 4.
Volume rose to 48.6 million shares, compared with 46.11 million shares traded on Tuesday.
"Security concerns are at the top of the list for investors at this point," said Ashraf Zakaria, a dealer at Ali Hussain Rajabali and Co.
Dealers said a fall in global stocks also left foreign investors cautious.
In the currency market, the rupee further recovered amid lack of import payments, but dealers expect the local unit to stay under pressure for now.
The rupee closed at 86.52/60 to the dollar, firmer than Wednesday's close of 86.52/60. It hit a record low of 86.83 on Monday.
Dealers said dollar payments are typically higher in July and August because of stronger oil demand and debt payments.
As well as oil payments, the International Monetary Fund's (IMF) stalled aid programme to Pakistan is also weighing the rupee down.
The IMF has criticised the government for its patchy implementation of fiscal reforms and has held back the sixth tranche of an $11 billion loan programme since August last year.
IMF and Pakistan officials were due to meet in July, but the meeting has been delayed and no new date has been announced.
A cut in the key policy rate by the central bank over the weekend was also likely to accelerate the rupee's slide, said another dealer at a major local bank.
Dealers said increased remittances from Pakistanis working abroad had supported the rupee and shielding the currency from a sharp fall in recent weeks, but the increased dollar demand over the last week pushed the rupee lower.
According to the official data, remittances rose to a record $11.2 billion in the 2010/11 fiscal year, an increase of 25.77 percent from the previous year.
In the money market, overnight rates ended unchanged at the top rate of 13.40 percent, just below the new policy rate of 13.50 percent, as the interbank market short of funds, dealers said.
Dealers said there were scheduled outflows amounting to 85 billion rupees ($981.9 million) on Friday.
Copyright Reuters, 2011