* India attacks on suspected militants in Pakistan hits
* India's NSE hits one-mth low; Pakistan's 100-share index
* India's 10-yr bond yield rises 10 bps; rupee retreats
* Tensions come ahead of India's cbank review on Tuesday
(Updates with details, background; adds Pakistan share
MUMBAI/ISLAMABAD, Sept 29 Share markets in India
and Pakistan fell on Thursday after India said it had conducted
"surgical strikes" on suspected militants preparing to
infiltrate from Pakistan-ruled Kashmir, escalating tensions
between the nuclear-armed neighbours.
The broader NSE index was down 1.8 percent after
falling as much 2.1 percent to its lowest since Aug. 29, while
Pakistan's benchmark 100-share index was down 0.5 percent
after earlier rising as much as 1.3 percent to a record high.
Indian benchmark 10-year bond yields were up
10 basis points to 7.02 percent from its previous close, while
the rupee weakened to 66.89/89 from its close of 66.46
"Markets will closely watch the next few days for further
developments. Any such conflict creates uncertainty in the
investment climate," said Shubhada Rao, chief economist at YES
Bank in Mumbai. "But it is premature to talk about serious war."
Confusing the picture, the Pakistani military said no such
strike had taken place but that there had been an exchange of
fire at the frontier in which two Pakistani soldiers were
If India has carried out surgical strikes, inflicting
significant casualties, it would represent the first direct
military response to an attack on an Indian army base earlier
this month that New Delhi blamed on Pakistan.
The announcement by Indian army's head of operations sent
India's share market Volatility Index (VIX), often
seen as a "fear gauge", up as much as 37.6 percent.
Analysts in both countries, however, expect tensions would
eventually ease given the stakes involved even if India has
departed from its characteristic stance of strategic restraint.
"The consensus is that it's not going to lead anything crazy
like a war, but it's bad for sentiment," said Gohar Rasool, head
of sales for Karachi-based Intermarket Securities.
Prior to the alarm over potential for conflict, investors in
India were already growing cautious ahead of a central bank
policy review on Tuesday.
Shares had already fallen in three out of the previous four
sessions as the Reserve Bank of India is expected to leave
interest rates on hold on Tuesday, waiting for more evidence of
Although inflation eased to a five-month low of 5.05 percent
in August, it remains near the top end of the RBI's 2 to 6
percent inflation target.
(Reporting by Darshana Sankararaman in BENGALURU, Suvashree Dey
Choudhury in MUMBAI, and Drazen Jorgic in ISLAMABAD; Writing by
Rafael Nam; Editing by Simon Cameron-Moore)