Investors worry about another attack after Mumbai

By Rina Chandran

MUMBAI (Reuters) - The risk of militants striking again in India worries many investors who fear that a second attack similar to last year's Mumbai raids could shake what has so far proved to be a resilient economy.

In some ways, last year's attacks in which Pakistani-based militants killed 166 people appear a distant memory. While they ratcheted up tensions with Pakistan, they failed in a principal aim -- to bring the two nuclear-armed foes to conflict.

Foreign investors bought more than $15 billion in Indian shares this year, helping local stocks gain nearly 80 percent, in a vote of confidence for the trillion-dollar Indian economy.

But the Mumbai raids forced investors to consider that any new attack could spark regional tension and panic in an economy that is just recovering from the global economic slowdown.

"While India has made some improvements to its counter-terrorism capabilities, it remains vulnerable to terrorist activities," wrote Maria Kuusisto of Eurasia Group.

"Another high-profile, mass-casualty attack would lead to intense domestic pressure on Delhi to adopt a more firm policy towards Pakistan and even retaliate, which would raise regional tensions."

Businesses in Mumbai, which was also a target in serial bomb blasts in 1993, lost about $800 million after the 2008 raids. The stock exchange was shut for a day and hotels and airlines struggled as countries issued travel advisories.

Another strike in India could also prove a political distraction for a government that is gaining traction with financial reforms in such sectors as insurance and pensions.