Pakistan police hold 7 planning attacks in Karachi

The militants belonged to the Tehreek-e-Taliban Pakistan, or Taliban Movement of Pakistan, alliance of factions accused of a wave of attack in urban areas and facing an army assault on their South Waziristan stronghold on the Afghan border, they said.

The suspects were arrested after a shoot-out in an eastern, middle-class neighborhood of Karachi on Wednesday, city police chief Waseem Ahmed told reporters.

They were planning to target offices of the law enforcement and intelligence agencies as well as the officials active in the crackdown against militants, Ahmed said.

Police recovered two jackets which suicide bombers use to pack their explosives, 300 kg (660 lb) of explosives, hand grenades, rockets and other ammunition, he said.

Pakistan, a nuclear-armed U.S. ally, has seen an increase in attacks by Islamist militants over the past two years. It has responded since April with offensives against militant strongholds in the northwest.

Karachi is home to Pakistan's main stock exchange, central bank and its main port. Many foreign companies also have offices in the city.

Stock market investors have been unnerved by insecurity in recent weeks and the main index has lost about 5 percent since the offensive against the Taliban was launched on October 17.

The main index closed marginally up at 8,924.24 points.

While Karachi has been spared a major militant attack in recent months, officials and investors fear the country's biggest city could become a target as government forces attack in the northwest.

Officials also say that organized crime in the city, including robbery and kidnapping, is a source of funding for militant groups.

(Editing by Robert Birsel)