Pakistan's stock, international bonds soar after ceasefire with India

By Sudipto Ganguly and Libby George

May 12 (Reuters) - Pakistan's stocks closed up 9.4% and its international bonds also recorded strong gains on Monday after a ceasefire deal with neighbouring India agreed over the weekend fuelled a relief rally.

Pakistan's main stocks benchmark - the KSE-100 share index .KSE - rose 9.6%, to its highest level since April 23, and closed at 9.4%, marking its highest ever gain in terms of points and percentage.

The country's international bonds rallied sharply, adding as much as 5.7 cents in the dollar, Tradeweb data showed. Most of the maturities have clawed back the losses sustained since the April 22 attack in Indian Kashmir on Hindu tourists that killed 26 people and sparked the worst clashes between the nuclear-armed neighbours in more than two decades.

Adding to positive momentum was a sign-off by the International Monetary Fund executive board on Friday of a $1 billion tranche in financing of its $7 billion loan programme with the fund. The board also greenlighted a fresh $1.4 billion loan under its climate resilience fund.

Saturday's ceasefire in the Himalayan region, announced by U.S. President Donald Trump, followed four days of fighting and diplomacy and pressure from Washington.

"After four days of tense clashes that pushed India and Pakistan close to war, a ceasefire appears to be holding after being announced on Saturday," said Jim Reid at Deutsche Bank in a note to clients.

The gains in stocks came after the exchange halted trading on Monday for an hour, according to an exchange notification.

In a research note, Arif Habib Limited said that while a ceasefire and diplomatic progress have boosted optimism, unforeseen escalations remained a risk.

The U.S. president pledging support for resolving the Kashmir issue and encouraging enhanced trade relations between India and Pakistan, the IMF's nod on Pakistan, as well as the central bank's 100 basis points rate key rate cut last Monday which is "expected to boost equity valuations", should all encourage stability, the note said.