Nov. 6 (Bloomberg) -- Police in Pakistan’s commercial capital of Karachi say it may take at least two months after the end of the country’s northern offensive against Taliban militants to root out terrorists hiding in the city.

About 28,000 troops are fighting guerrillas in South Waziristan, 570 miles (917 kilometers) northwest of Karachi, targeting the Taliban faction the government in Islamabad blames for 80 percent of bomb and gun attacks in the nation.

“Terrorists are fleeing to areas that are as far away as possible from the conflict and populated enough to hide,” Syed Mazhar Mashwani, Karachi’s senior superintendent of investigations, said in an interview. “In Karachi, they find places to shelter and it will take a couple of months to clean them out after the operation ends.”

Militants holing up in Karachi may increase the risk of a terrorist attack in a city that houses the stock exchange, central bank and where global corporations including London- based Standard Chartered Plc and China Mobile have offices.

The army offensive and retaliatory bombings have failed to damp a 55 percent gain in the Karachi 100 share index this year. Overseas investors bought $208 million more Pakistani stocks than they sold in the three months ended Sept. 30, according to the central bank. Attacks in cities like Lahore and Peshawar have rattled investors and led to short-term share declines.

Karachi authorities have arrested 70 people in the last few months and recovered explosives, suicide jackets and rocket launchers, city police chief Wasim Ahmed said. Since the end of October, investigators have detained 453 foreigners who were illegal residents, among them Afghans and Uzbeks, he said.

Sprawling Slums

Karachi’s slums such as Sohrab Goth and Orangi Town provide an ideal hideout for militants wanting to lay low in the city of 18 million people. The Pakistan Taliban is made up mainly of ethnic Pashtuns, who are present in large numbers in Karachi. The city also has sizeable populations of Afghans and Uzbeks, who figure in the ranks of militants allied to the Taliban.

While suicide bombings and commando-style attacks on civilian and security targets killed more than 300 Pakistanis in October, there hasn’t been a bombing in Karachi since an assault on the homecoming convoy of former Prime Minister Benazir Bhutto in October 2007. Bhutto was assassinated later that year.

“The situation could have been very difficult for business,” said Javed Ahmed Vohra, vice-president of the Karachi Chambers of Commerce and Industry, which has 16,000 members. “We haven’t seen a single business in Karachi shut down because of the terror threat.”

Place to Hide

Karachi has avoided a big attack because it has provided thousands of militants with a place to “hide while still staying linked to their network,” Rana Saba, head of the department of criminology at Karachi University, said.

Still, “terrorists change their attack styles. First it was security forces, then government buildings, now shopping centers. In desperation they can choose to hit the commercial hub of Karachi, too,” he said.

Soldiers are trying to take control of the South Waziristan homeland of the Mehsuds, an ethnic Pashtun tribe that supplies the core of the largest Taliban force of about 10,000 fighters.

The operation in the region bordering Afghanistan, has killed more about 450 militants since Oct. 17, the army says. In a statement today it said soldiers had entered Makeen and were consolidating positions elsewhere. Troops have taken control of towns and villages formerly used as command centers by the Taliban though former military commanders say they have not so far fought militants in the forested mountains that provide their most secure bases.

‘Go to Hell’

Pakistan’s Taliban Chief Hakimullah Mehsud warned fighters yesterday against fleeing the conflict, the Associated Press reported. “Such people will go to hell,” he was cited as saying in an intercepted conversation shared with AP.

“Our intelligence has been timely and we’ve been able to catch them before they do anything,” police chief Ahmed said. “We’ve either caught people with arms and ammunition who are clear attackers.”

Akhtar Zaman Mehsud, the Taliban’s Karachi commander, was arrested in the city on Oct. 19 for attempting to attack the nation’s biggest oil terminal in September.

“Coming to big cities becomes a trap for militants,” Superintendent Mashwani said. “Here they are isolated without the ground support they have in the tribal areas. They are just individuals who can be nabbed with good intelligence.”

Police and paramilitary troops have been deployed across the city since the end of October, especially outside major hotels, shopping centers and mosques to conduct random security checks of cars and pedestrians.

“Investors are nervous and hoping all this will end soon,” said Amjad Waheed, who manages 14 billion rupees ($167 million) in stocks and bonds at National Fullerton Asset Management Ltd. in Karachi. “But confidence is boosted by the fact that Karachi has remained normal and even if terrorists are here, the anti- terrorist efforts are keeping things in control.”

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan at Fsharif2@bloomberg.net.

Last Updated: November 6, 2009 07:28 EST