The country's shares watchdog and officials at the Karachi Stock Exchange, or KSE, said on Friday they were
investigating the possibility of irregularities or manipulation by big brokerage houses.
Hundreds of shareholders threw stones and smashed up cars on Thursday after the exchange prevented them from selling their loss-making holdings for a sixth consecutive day. Five people were arrested.
Armed rangers and police were searching people and checking their identity cards as they entered the Karachi exchange, witnesses and police said, while four mobile police vans were stationed outside the building.
The KSE-100 index of blue-chip shares reached an all-time high of 10,304.72 points on 15 March but continued to fall on Friday to 7940 points at a pre-lunch break.
Pakistan's Securities and Exchange Commission has brought in a string of reforms in recent years to check possible insider trading and market manipulation by big brokerage houses.
After fears that economic fundamentals did not justify recent stock market gains, the watchdog launched an investigation, its chairman Tariq Hasan told AFP without divulging the findings.
Pakistan's economic recovery is
reflected in rising stock prices
"We had sent a team of our experts to Karachi but this is a routine practice of ours as a regulator to check abnormal activities at the bourse," he said.
KSE director Moin Fudda said that initial investigations showed the market was being manipulated by "someone big" so they could buy shares cheaply from desperate smallholders. He did not elaborate.
"Reforms have largely checked the chances of manipulations and it is not being done at the levels of say 10 years ago, but there is still room for further improvement," Mohammad Sohail, director of Jahangir Siddiqui Capital Markets Limited, said.
Dealers had said last week that the breaking of the 10,000 point barrier marked a historic recovery for the KSE, which hit a low of 1401 points on 15 March, 2001.
But the rapid rise of stocks in recent weeks prompted fears of a crash."The situation is quite worrisome at the market so far and let's see if investors can settle their deals amicably," Sohail added.