Many in the region are preparing for a possible military confrontation between India and Pakistan because of a terrorist attack two weeks ago.

India and Pakistan are scrambling resources both military and diplomatic to respond to a crisis triggered by a massacre in Indian-controlled Kashmir that has heightened fears of a conflict between the nuclear-armed rivals.

Pakistan carried out a second missile test in three days on Monday after saying it was preparing for an incursion by India, as Moody's warned that the standoff over violence in Kashmir could set back Islamabad's economic reforms.