KARACHI Pakistani stocks fell over 3 per cent and the rupee slid towards record lows on Wednesday due to investors` fears of a looming clash between a four-month-old civilian government and President Pervez Musharraf, dealers said.

Asif Ali Zardari, the head of the ruling party, met his major coalition partner Nawaz Sharif in Islamabad on Tuesday to resolve differences over how to handle Musharraf and reinstate Supreme Court Judges who were dismissed by the president during six weeks of emergency rule late last year.

The two will meet a gain later on Wednesday, but a spokesman for Zardari`s party said they had reached a consensus on major issues.

Sharif, the prime minister Musharraf overthrew in a military coup in 1999, wants his usurper impeached.

Due to leave for China on Wednesday to attend the Beijing Olympics and meet the Chinese leadership, Musharraf cancelled the trip at short notice, a member of his entourage said.

`Incremental buying is unlikely to significantly boost broader investor confidence as news flow on the political front is once again turning negative,` said Ahsan Chishty, head of international equity sales at BMA Capital Management.

The Karachi Stock Exchange (KSE) benchmark 100-share index fell 3.27 per cent, or 327.94 points, to 9,714.53 on turnover of 40.3 million shares by 1223 p.m.

Public faith in the civilian led government has waned because of raging inflation, power outages, and fuel and food shortages, and rising militancy across the northwest.

The rupee was quoted at 72.40/50 to the dollar, weaker than Tuesday`s close of 72.25/35 as dealers said sentiment was weak and there were some import payments.

The rupee made an all-time low of 73.50/80 to the dollar on July 8 and its closing low is 72.85/90 made on the same day.

Among the most active companies, NIB Bank fell 4.89 per cent to 8.94 rupees, Pakistan Petroleum shed 0.11 per cent to 204 rupees, while National Bank of Pakistan was 5 per cent lower at 104.41 rupees.