Pakistani stock index sinks 4.2 percent

The Karachi Stock Exchange's 100 Index sank 493.11 points, or 4.2 percent, to 11,162.17. Since hitting a peak in mid-April, the index has tumbled nearly 29 percent.

Shabbir Malik, head of research at Global Securities, a Karachi-based financial services provider, blamed the slump on a lack of liquidity and fresh capital in the market.

Aside from the country's political instability, traders have been reluctant to invest since the State Bank of Pakistan hiked interest rates by 1.5 percentage points to 12 percent in May to combat skyrocketing inflation.

Inflation has continued to soar, and Malik said investors likely fear higher interest rates unless the central bank takes more "positive steps."

Pakistan faces a host of economic problems, including yawning budget and current account deficits as well as chronic power shortages.