By Syed Raza Hassan

Pakistan stocks fell nearly 3% on Wednesday while the rupee dropped to a record low, as investors feared a U.S. Senate bill that is seeking to impose sanctions on the Afghan Taliban could be extended to Pakistan.

The benchmark Karachi Stock Exchange index was last down 1.5% at 44,594 after declining as much as 2.9% earlier in the session.

The rupee reached a historic low of 170.27 against the dollar, also weighed down by high demand for the greenback and the situation in Afghanistan, analysts said.

The plunge appears to be related to the U.S. Senate bill seeking to impose sanctions on the Afghan Taliban and which could extend to Pakistan, said Samiullah Tariq, head of research and development at Pakistan Kuwait Investment Company Pvt Ltd.

"Dollar parity is consistently rising as demand for the dollar is high due to the current account deficit, and the Afghan situation is also adding pressure," he said.

The State Bank of Pakistan (SBP) had indicated earlier that the dollar could appreciate during the current financial year due to an expected higher current account deficit.

Last week, the central bank amended the prudential regulations to slow imports which swelled to more than $6 billion in August alone.

The SBP said the targeted step would help moderate demand growth in the economy, leading to slower import growth and thus supporting the balance of payments.