ISLAMABAD (Reuters) -- Suspected Taliban militants have shot and killed a Pakistani Army brigadier and his driver in the capital as the military continued a major offensive against the insurgents in their strongholds near the Afghan border.
Exposing the country's frayed nerves, the stock market dipped nearly 3 percent on false reports that a bomb had been found and shots fired at a courthouse in the capital, Islamabad.
The false alarm came as the country remained on high alert for possible retaliatory strikes by Taliban militants while the army attacks their strongholds in South Waziristan.
The offensive is a test of the government's determination to tackle Islamic fundamentalists, and the campaign is being closely followed by the United States and other powers embroiled in Afghanistan.
On October 22, suspected militants shot and killed Brigadier Moin Haider, who was on vacation in Islamabad from a secondment with the United Nations in Sudan.
"It was an act of terrorism," said military spokesman Major General Athar Abbas. "The purpose was to kill and make news."
Haider, whose rank is equivalent to a U.S. brigadier general, one step below a full one-star general, is the second senior officer to be killed in less than two weeks following a commando-style raid on army headquarters in Rawalpindi.
A shopkeeper, Naveed Haider, said he saw a man running, his face covered with a yellow cloth, before he heard gunshots.
"A man with a motorbike was waiting for him on the street. He sat on it and they fled," the witness said. Police said Haider's driver was also killed and a bodyguard wounded.
Pakistani forces launched an offensive on October 17 to take control of lawless South Waziristan after militants rocked the country with a string of bomb and suicide attacks, killing more than 150 people.
Analysts have warned of the possibility of more urban attacks as the militants are squeezed out of their strongholds, with the Taliban hoping bloodshed and disruption will cause the government and ordinary people to lose their appetite for the offensive.
On October 20, two suicide bombers attacked an Islamic university in Islamabad, killing at least four people, and the next day authorities ordered schools and colleges to close across the country.
Remote and rugged South Waziristan, with its rocky mountains and patchy forests cut through by dry creeks and ravines, is a global hub for militants.
About 28,000 soldiers are battling an estimated 10,000 hard-core Taliban militants, including about 1,000 tough Uzbek fighters and some Arab Al-Qaeda members.
Foreign reporters are not allowed anywhere near the battle zone and it is dangerous even for Pakistani reporters to visit.
More than 100,000 civilians have fled the area, with about 32,000 of them leaving since October 13, the United Nations said.
The army has launched brief offensives in South Waziristan before, the first in 2004 when it suffered heavy casualties before striking a peace pact.