Aug. 28 (Bloomberg) -- Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.

Securities can trade within their daily limit of 5 percent ``but not below the floor-price level'' of yesterday's close, the exchange said on its Web site, without giving details. The Karachi Stock Exchange 100 index capped a six-day, 16 percent slump to 9,144.93. Trading starts at 9:45 a.m. local time.

The exchange is working to restore confidence after President Pervez Musharraf quit on Aug. 18 to avoid impeachment, and ruling alliance members nominated rivals for the presidency. Investors stoned the exchange last month after it removed a 1 percent daily limit on price declines. Today's decision follows a collapse in the index to the lowest in 26 months.

``This could cause liquidity to dry up because who wants to buy if they can only pay a higher price?'' said Daphne Roth, Singapore-based head of equity research in Asia at ABN Amro Private Bank, with about $30 billion of Asian assets. ``Risk appetite is low and investors are avoiding markets where there is political instability.''

Pakistan's biggest political parties on Aug. 26 proposed rival candidates to replace Musharraf in a Sept. 6 parliamentary vote. Asif Ali Zardari, head of the Pakistan Peoples Party, will compete with nominees including former chief justice Saeed-uz- Zaman Siddiqui, put forward by Nawaz Sharif, leader of a faction of the Pakistan Muslim League.

Sharif vs Zardari

Sharif quit the coalition on Aug. 25, accusing Zardari of reneging on a pledge to reinstate judges fired by Musharraf. Stocks have plunged on concern the political instability will blunt government efforts to tackle a rising Taliban insurgency, grapple with inflation at its highest in 30 years and revive the faltering economy.

``The market is definitely in a condition where it will need some extraordinary measures,'' said Nasim Beg, who manages the equivalent of $370 million in stocks and bonds as chief executive officer of Arif Habib Investments Ltd. in Karachi.

Pakistan's stock market value plunged to $38.8 billion on Aug. 26 from the peak of $75.7 billion on April 4.

Police and paramilitary forces ringed the exchange on July 17, a day after hundreds of investors stoned the building and shouted anti-government slogans. The Securities and Exchange Commission of Pakistan, which had imposed a 1 percent daily limit on price declines, was forced to remove the measure as trading volume plummeted. The commission sought to halt a slide that wiped out $30 billion of market value in three months, threatening to undo a 14-fold rally since 2001.

``Freezing the index would not be a good idea,'' said Habib- ur-Rehman, who manages the equivalent of $91.5 million of stocks and bonds at Karachi-based Atlas Asset Management Ltd. ``Direct intervention in market movements would lead to further complications as we have seen in the recent past.''

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan, at fsharif2@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net

Last Updated: August 27, 2008 23:11 EDT