Shares at the Pakistan Stock Exchange (PSX) continued their bull run on Thursday on expectations that the government and the International Monetary Fund (IMF) would reach an agreement soon, helping the cash starved country avert default.

These expectations had also led to the local currency, which has taken a severe beating in the past few weeks, recovering in the interbank market.

The benchmark KSE-100 index closed at 42,466.59 points, up 743.27 points, or 1.78 per cent. It reached an intraday high of 844.43 points, or 2.02pc, at 3:28pm.

“Stocks showed bullish activity on strong rupee recovery ahead of IMF deal and strong corporate results,” Arif Habib Corporation Director Ahsan Mehanti said.

He added that speculations of strong payouts to companies to settle circular debt and restructuring of debt repayments after the IMF programme’s resumption also played a catalyst role.

Salman Naqvi, head of research at Aba Ali Habib Securities, said the primary reason for the index’s rise was the expected deal with the IMF. “We see improvement,” he said, adding that investors were anticipating that the IMF agreement would resolve some of the country’s economic issues.

The market has been discounted and the earnings-to-price ratio is very attractive, Naqvi said.

“If matters with the IMF are settled smoothly, the stock market will gain further and the rupee will appreciate further.”

A delegation of the IMF, headed by Nathan Porter, is currently in Islamabad for discussions on the completion of the ninth review of a $7 billion loan programme. The review’s completion would not only lead to a disbursement of $1.2bn from the IMF but also unlock inflows from friendly countries and other multilateral lenders that Pakistan needs to stave off default.

Minister of State for Finance and Revenue Aisha Ghaus Pasha told journalists on Wednesday that the government and the global lender were “very close to the finalisation” of a Memorandum of Economic and Fiscal Policies (MEFP).

She said the MEFP would be handed over to Pakistan by the IMF once all issues are finally settled. She said a lot of things had been settled while the lender required clarity on some aspects, which the government team was trying to address.

This was also confirmed by the Ministry of Finance. In a written statement, the ministry said the talks with the IMF continued on Wednesday and “focused on fiscal table, financing, etc. There is a broad consensus on the reform actions and measures”.