June 24 (Bloomberg) -- Pakistan's benchmark stock index rose the most in six years after the Karachi exchange curbed the amount equities can decline, banned short selling and announced a planned fund to halt slumping prices.

The Karachi Stock Exchange 100 Index rose 8.6 percent at the close, the biggest climb since May 24, 2002. The exchange will limit share declines to 1 percent a day from 5 percent, and double the cap on increases to 10 percent. More than 30 of the measure's 100 stocks rose by the maximum, led by Oil & Gas Development Co., and 78 exceeded the earlier limit.

The measures follow a 29 percent slump in the benchmark index in two months. The exchange plans a 30 billion-rupee ($444 million) stabilization fund that would be deployed in ``volatile circumstances,'' will ban short selling for a month and allow guarantees to support buying on margin for the first time.

``The market was oversold, and the measures taken by the regulators supported the market,'' said Habib-ur-Rehman, who manages 7 billion rupees in stocks and bonds at Atlas Asset Management Co. in Karachi.

Stock exchange management and officials from the Securities & Exchange Commission agreed last night on the measures to stabilize the market, the statement said.

``Regulators have made the right decision to support the market in the current situation,'' Nasim Beg, chief executive officer at Arif Habib Investments Management Ltd., who manages the equivalent of about $300 million in stocks and bonds, said by telephone from Karachi.

Index's Decline

The Karachi Stock Exchange 100 Index rose 960.50 points to 12,122.67 at the close.

The index fell 9.9 percent last week, the steepest drop in three years, on concern the two largest parties in the governing coalition may split because of a disagreement over the reinstatement of sacked judges.

Asif Ali Zardari, coalition leader and co-chairman of the Pakistan Peoples Party, and former Prime Minister Nawaz Sharif, have failed to resolve differences over how to reinstate judges dismissed by President Pervez Musharraf.

The impasse between the two coalition leaders may deepen the retreat from the South Asian nation by foreign investors, who slashed their spending on Pakistani stocks to $62.2 million in the 11 months ended May 31, from $1.76 billion a year earlier, according to data from the central bank.

`Overselling'

Sharif pulled his ministers out of the Cabinet May 13, after Zardari backtracked on reinstating the judiciary. The two party leaders also differ over how to remove Musharraf and whether the former army chief should stand trial.

``There has been a lot of overselling, especially in the financial sector,'' said Atif Malik, vice president of sales at JS Global Capital Ltd. in Karachi. ``Some banks are even trading below their book value. So, they have become pretty attractive.''

MCB Bank Ltd., the nation's biggest bank by market value, National Bank of Pakistan, the largest by assets, and Habib Bank Ltd., which has the most branches, all gained by the maximum 10 percent.

JS Global recommends energy stocks, especially oil producers, fertilizer makers and financial companies, Malik said. Textile companies and cement companies that are ``highly leveraged'' should be avoided, he said.

To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan at fsharif2@bloomberg.net; Katherine Espina in Singapore at kespina@bloomberg.net

Last Updated: June 24, 2008 07:14 EDT