KARACHI: Pakistani and Indian shares took a nosedive following news of a cross-border skirmish across the Line of Control in Azad Jammu and Kashmir on Thursday.

The KSE-100 index of the Pakistan Stock Exchange opened at 40,355 points, hitting a high of 40861.27 around midday before media channels began running news of an exchange of fire across the Line of Control in which two Pakistani soldiers were killed.

The index took a 500-point nosedive on the back of the news, taking an additional hit of nearly 200 points to 40,155 as the day progressed. It, however, made a small recovery, climbing to 40,295 points at the time this report was filed.

Indian shares, bonds and the Indian Rupee also fell sharply, just days before the Indian central bank is set to hold a policy review.

Indian investors have already been growing cautious ahead of the Reserve Bank of India's policy review next Tuesday.

India's NSE index plunged over 200 points midday from 8,792 points to 8,658 points, making a brief recovery before falling again.

Pakistani and Indian stock markets are taking a hit as tensions simmer between the two neighbours over the Kashmir issue, days after India accused Pakistan of involvement in the Uri army base attack in India-held Kashmir ─ an allegation that Pakistan has rejected.

Pakistani shares saw a similar drop last week, after closure of airspace over the northern areas and flights by Pakistan Air Force fighter jets participating in exercises fuelled rumours that the country's armed forces were preparing for a possible Indian attack.