Pakistani Prime Minister Yusuf Raza Gilani is due to meet a leader of the main opposition party on Monday in a bid to head off a possible vote of no confidence against him after a key partner quit the governing coalition.
Gilani's government lost its parliamentary majority on Sunday after the Muttahida Qaumi Movement (MQM) announced it would go into opposition, plunging the country, vital for US efforts to pacify Afghanistan, into a deep political crisis.
Pakistani stocks opened 1.43 per cent lower on Monday after the second largest party switched political allegiance, dealers said.
However, the market recovered slightly and the Karachi Stock Exchange's benchmark 100-share index was down 0.69 per cent or 82.43 points at 11940.03, on turnover of 4.8 million shares, by 9:38 am. (0438 GMT).
The MQM's withdrawal means that if opposition parties close ranks, they would be able to force a no-confidence vote on Gilani in parliament.
If the crisis deepens, an early election may be called.
Gilani is scheduled to meet the president of the biggest opposition party in the National Assembly, the Pakistan Muslim League (PML-N) on Monday.
"The Prime Minister will discuss the political situation with Shahbaz Sharif and ways and means to resolve this crisis," an official in Gilani's office said.
The MQM pullout came after Jamiat-e-Ulema-e-Islam (JUI), a pro-Taliban religious party, quit the coalition last month after Gilani sacked one of its ministers.
While analyst doubt that Gilani would see out his term, which ends in 2013, the chances of the opposition forming a new ruling alliance are slim, as the PML-N, headed by popular politician Nawaz Sharif, does not enjoy close ties with other opposition parties.
The political paralysis will make it even harder for Pakistani leaders to tackle a wide array of problems frustrating millions of Pakistanis -- from corruption, to poverty to suicide bombings carried out by Taliban militants.
Foreign direct investment fell by 21.5 per cent in the first five months of 2010 to $573.3 million because of factors such as militant violence.
The stock market closed up 28 per cent in 2010, partly due to foreign buying.