May 12 (Bloomberg) -- Pakistan’s benchmark stock index, the world’s worst performer over the past month, may rebound as the country intensifies its attacks against Taliban militants, Credit Suisse Group said.

The Karachi Stock Exchange 100 Index, or KSE 100, as the index is also known, may climb to 9,000 if the country’s military campaign is successful, Credit Suisse said. The measure added 2.4 percent to 7,296.90 at the close, the biggest gain since April 24.

The gauge dropped 6.1 percent over the past month, making it the world’s worst performing index, according to data tracked by Bloomberg. The index was the fourth-best performer in the first quarter after advancing 17 percent.

“If all progresses well in the war against the militants, then we could see a 25 percent upside from current index levels,” Farid Khan, an analyst at Credit Suisse, said in a phone interview from Karachi today. Inflation at 17.19 percent in April was largely in-line with expectations, he added.

Prime Minister Syed Yousaf Raza Gilani said yesterday the army will defeat Taliban militants after his government said that troops backed by helicopter gun ships in the northwest killed more than 700 guerillas in the past two weeks.

Pakistan’s inflation eased to a 13-month low in April, giving the central bank room to further cut interest rates, he said. Consumer prices in South Asia’s second-largest economy rose 17.19 percent from a year earlier after gaining 19.07 percent in March, the Federal Bureau of Statistics said on its Web site yesterday.

The Pakistan index may be included in Morgan Stanley’s MSCI Frontier Market Index this week, which will help draw investors back to the market, Khan said.

‘Bullish Signal’

Pakistan equities are trading well above their historical discount level of 35 percent, Credit Suisse said. Gains may be stalled if the progress on war on terror slows or if economic data show signs of slowing growth.

“We reiterate that investors keep an eye on the bigger picture and any progress on the political and military front should be taken as a bullish signal,” Credit Suisse said in a May 8 report.

The brokerage favors the oil and gas and fertilizer sectors over banks. Its top buys are Oil & Gas Development Co., the country’s biggest fuels explorer, Pakistan State Oil Ltd., the nation’s largest fuel retailer, and Engro Chemical Pakistan Ltd., the No. 2 urea maker.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net.

Last Updated: May 12, 2009 06:48 EDT