Pakistani investors and traders ransacked stock exchanges in Karachi, Lahore and Islamabad today, reacting furiously to a share-price rout that has decimated the life savings of many.

Police and paramilitary officers were drafted in to protect the Karachi Stock Exchange after a thousand-strong mob stoned the building, smashed windows and chanted anti-government slogans. In the eastern city of Lahore, investors burnt tyres and blockaded the local bourse.

The violence followed a 35 per cent fall in the value of the benchmark Karachi Index in the past three months on the back of concerns over the stability of Pakistan's fragile coalition government, rocketing inflation levels, and the weakness of the rupee.

Fears over growing lawlessness in northern Pakistan and the threat of United States military attacks in tribal regions have also contributed to an exodus of foreign investors that has helped erase more than £15 billion from the value of Pakistan shares since mid April.

Protestors took to the streets following the Securities and Exchange Commission of Pakistan's removal on Monday of a 1 per cent daily limit on share price declines and a ban on short selling. The measures had been imposed to stabilise the market. After they were lifted shares fell more than 11 per cent in three trading sessions, wiping out another £2.5 billion in value.

Kauser Javed, the head of the Small Investors Association, demanded that share prices be frozen at their current levels. He said: "If things continue this way, you will hear of suicides. The regulators only favour big brokers and investors."

Pakistan's slide into a gruesome bear market signals a remarkable reversal of fortunes for a country that had previously benefited from a seven-year rally that had lifted equity prices fourteen-fold. All eyes are now on the execution of a planned 50 billion rupee (£350 million) stabilisation fund, which it is hoped will prop up the market.

Another key focus will be the state of relations between Asif Ali Zardari, the co-chairman of the Pakistan Peoples Party, the biggest group in the country's coalition government, and Nawaz Sharif, the former prime minister. The pair are currently at odds over how to reinstate judges that were controversially dismissed by President Pervez Musharraf, Pakistan's former leader.

Sayem Ali, the Standard Chartered economist, said: "Together with inflation, a depreciating exchange rate and worries over fuel prices, the main risk to macroeconomic stability comes from the weak coalition government."

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