Stocks rebounded on Thursday with the KSE-100 index recouping 1,165.51 points (2.74 per cent) from the losses of 547 points suffered a day earlier.

At the closing of the day, the index settled in the green at 42,523.07, as the risk of an all-out war breaking out between the United States and Iran dissipated.

The total volume of shares traded stood at 249.5 million, a decrease of 12.2pc compared to yesterday's 280m shares. But the value of shares traded on both days was more or less the same at Rs11.7bn.

US President Donald Trump, while delivering a televised address on Wednesday in response to Iran's missile attacks, had announced more "punishing" economic sanctions even as he extended an olive branch to the "people and leaders" of Iran to work together for "shared priorities".

Ali Asghar Poonawala, Deputy Head of Research at AKD Securities, attributed the bulls' taking charge to "largely the dissipation of risk following easing of rhetoric".

He said a perception had been built by Trump's highly anticipated statement that the market would show an upside.

"Trump's off-ramp or conciliatory tone to some extent cleared the tense environment and pushed stocks up" in addition to improved participation, Poonawala added.

He expected the positive trend to continue, saying the market will now likely start to experience fluctuation due to changes in energy pricing, particularly gas. The market now "has a clear eye on inflationary pressures", he added.

On Wednesday morning, investors had woken to the grim news that Iran had responded to the US killing of its military commander Qasem Soleimani by firing a dozen ballistic missiles at two American military facilities in Iraq.

After Iran's retaliation stoked fears of war between the US and Iran, threatening to drag the whole region into the conflict, the Pakistan stock market closed 546.90 points (1.31 per cent) in the red at 41,357.57.