"Investors are hopeful that the current taxation structure would be revisited and new tax measures will provide some relief to investors," said Samar Iqbal, a dealer at Topline Securities Ltd.

The 2010/11 budget is most likely to be announced on June 3.

KSE benchmark 100-share index ended 0.83 percent, or 99.94 points, higher at 12,130.58 on turnover of 70.11 million shares.

The rupee strengthened after falling to a record low the previous day as dealers suspected there could be possible verbal central bank intervention.

The rupee ended at 85.57/63 to the dollar, compared with Monday's close of 85.85 after it hit a record low at 86.50.

"It seems like there have been more intervention but the outlook for the rupee is still weak," said a bank dealer.

There are concerns about the growing tensions with the West which could choke off much needed foreign aid.

Foreign exchange reserves also eased to $16.97 billion in the week ending on May 14 after reaching a record high of $17.95 billion in March, due to scheduled debt repayments.

Concerns over a reduction in foreign aid have flared since US special forces found and killed al Qaeda leader Osama bin Laden early this month in a house near the Pakistani capital.

The rupee has lost 1.24 percent of its value since then, almost the same as its total loss of 1.53 percent in 2010.

The rupee's slump to a record low comes a little over a month after it rose to an 11-month high suggesting its outlook has weakened because of uncertainty following bin Laden's death.

In the money market, overnight rates ended between 13.75 percent and 13.90 percent, compared with Monday's close of between 13.25 percent and 13.50 percent, and dealers said they were awaiting the Pakistan Investment Bond auction scheduled for Wednesday in which they expect the cut off yields to slightly rise.

Copyright Reuters, 2011

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