Karachi - Fears of armed conflict with Afghanistan are causing foreign investors to pull out of Pakistan's stock market, traders said Thursday.

The country's stock exchange lost more than 7 per cent, since Afghan President Hamid Karzai's weekend sabre-rattling threats to invade Pakistan in pursuit of Taliban insurgents.

The benchmark KSE-100 Index was trading down by 4.4 per cent or 542 points at midday Thursday, the sharpest decline since the start of the week.

"The new threat by Afghanistan's President Hamid Karzai of sending troops to Pakistan is creating a massive selling pressure from foreign institutional investors," said trader Ateeq Ahmad of Capital One Equities.

The Karachi Stock Exchange has lost around 200 billion rupees (3 billion dollars) in market capitalization since Karzai's threats. (dpa)