Terror attacks shut Indian exchange

Other markets, including the bond and commodities exchanges, were also closed as negotiations to free up to 200 Western hostages continued.

Investors feared the attacks, which appear to be targeting US and British visitors, would hammer share prices.

India's main shares index, the Sensex, is already 56% down this year - its worst performance on record.

There were also concerns about the impact the attacks will have on the Indian currency, the rupee.

So-called credit-default swaps, which insure against companies failing to meet debt repayments, rose 20 basis points in price for the government-controlled Indian lender, the State Bank of India to 440.

But futures markets trading bets on the Indian markets from abroad were not in absolute free fall. In Singapore, Indian stock index futures were only down 2.5% while futures on the rupee were down about 0.8%.

However, traders cautioned that these were fairly illiquid markets and that the true impact would not be known until Mumbai's bourses opened for business again, which is expected tomorrow.

Ajay Bodke, fund manager at IDFC Assets Management in Mumbai, said: "We will see a ripple effect in terms of investor sentiment as the terrorist attack was in the financial hub.

"India needs to deal with this with an iron hand."