KARACHI, (Reuters) – Clashes that killed at least 40  people overnight in Karachi scared residents off its streets yesterday as Pakistan’s largest city was on alert for more  violence after the shooting of a leader in a dominant political  party.

Police said more than 90 people were wounded and dozens of  vehicles and shops torched as mobs who took to the streets  after Raza Haider, a member of the provincial Sindh Assembly  from the Muttahida Quami Movement (MQM), was gunned down on  Monday along with his bodyguard while attending a funeral.

The government blamed the Taliban and the banned militant  group Sipah-e-Sahaba Pakistan (SSP) for the killing of the  lawmaker. Twenty people have been arrested in connection with  the violence, federal Interior Minister Rehman Malik told the  Senate on Tuesday.

The violence once again raised fears of instability in  Karachi, a city of 18 million and Pakistan’s commercial hub,  and about the flight of Taliban militants to the city after  army offensives against their bases in Pakistan’s northwest.   Some analysts said the violence could ultimately affect the  economy. Karachi is home to the country’s main port, the  central bank and the stock exchange, which has so far seen thin  trade and will close an hour early because of the violence.

“This obviously raises concern and anxiety, and if these  things continue, Pakistan’s economy gets undermined,” said  Hasan-Askari Rizvi, a political and security analyst.

“It is a pathetic situation and exposes the helplessness of  the government to perform its basic duty towards its citizens,”  said Rizvi.

The stock market was open on Tuesday but trade was dull and  attendance thin due to security concerns. The main index was  flat by 1:00 pm (0800 GMT), but dealers said the violence could  dampen investor sentiment.

Police and officials said that they also found evidence  suggesting that militants had planned a suicide attack during  Haider’s funeral, scheduled for later on Tuesday.

“On the basis of evidence available at the moment, it (the  killing of Haider) was carried out by the Tehrik-e-Taliban and  Sipah-e-Sahaba,” Malik told reporters in Islamabad.

The MQM, a coalition partner in the federal as well as the  provincial Sindh government, renewed calls for a crackdown on  militants after the killing of its lawmaker.