Army personnel stand guard during the 4th consecutive day of the curfew in Jammu, India. (Source; PTI)

Six More Killed in Kashmir as India-Pakistan Tensions Rise

(Bloomberg) -- Four Indian soldiers and two militants were killed in Kashmir on Monday, days after the worst attack in decades rocked the disputed region, raising tensions with neighbor Pakistan and contributing to a decline in the rupee.

The soldiers, including one major, were killed during a search operation in Pulwama district, near the summer state capital of Srinagar, an Indian Army spokesman said in New Delhi. The army also said two terrorists were killed. Earlier on Monday, Pakistan called back its envoy from New Delhi for consultations reciprocating a similar move by India last week.

Six More Killed in Kashmir as India-Pakistan Tensions Rise

Combined with rising crude prices, heightened Kashmir tensions -- with Prime Minister Narendra Modi pledging a “befitting reply” last week -- have weighed on India’s currency. The rupee went from being the best-performing Asian currency last quarter to the worst this year, slumping 2.4 percent since the end of December. It weakened to 71.515 per dollar Monday, from as strong as 69.23 in early January. The benchmark S&P BSE Sensex also fell 0.8 percent to 35,511.46 as of 2:59 p.m. in Mumbai, headed for an eighth day of declines, its longest losing streak since August 2013.

“The risk for the India story, which is keeping the dollar well bid vis-a-vis rupee, is higher oil, followed by Kashmir tensions and the political uncertainty,” said Ashish Vaidya, head of trading at DBS Bank Ltd. in Mumbai. “If the negative factors are sustained, for instance, if the Kashmir situation worsens, the rupee could soon touch 73.”

On Monday, oil traded near the highest level since November on optimism the U.S. and China can reach a trade deal and as an outage at the world’s largest offshore field in Saudi Arabia signaled tightening supply.

Worst Attack

Tensions are high because forty soldiers were killed on Thursday when a suicide bomber rammed his explosive-laden vehicle into a bus ferrying security forces -- the worst attack in Kashmir in decades. Jaish-e-Mohammad, a Pakistan-based terror group, claimed responsibility for the attack that also took place in Pulwama.

The strike in Kashmir is by far the worst since Indian Prime Minister Narendra Modi came to power in 2014 and has put pressure on the government to act against Pakistan, which it blamed for the deadly assault in Kashmir. Over the weekend, India raised duties on all goods imported from Pakistan as a retaliatory measure. The government in Islamabad has denied any link to the attack last week.

Analysts expect there may be some type of retaliation. Last week’s attack is even worse than a 2016 terrorist ambush on an Indian army camp in Kashmir that killed 19 soldiers and prompted India to launch cross-border attacks against Pakistan, jolting markets.

Kashmir, a Himalayan region divided between India and Pakistan since 1947 and claimed in full by both, is at the heart of the dispute between the nuclear-armed South Asian neighbors and the cause of two of three wars between them.

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