Pakistan's stock market closed lower on Monday after a gas pipeline deal with Iran raised fears the United States would impose sanctions on Islamabad, dealers said.

"Across the board selling was witnessed as investors preferred to reduce their exposure before any negative news," said Samar Iqbal of Topline Securities.The Karachi Stock Exchange's (KSE) benchmark 100-share index ended 2.46 percent, or 441.62 points, lower at 17,522.56 points.

The presidents of Iran and Pakistan marked the start of Pakistani construction on a much-delayed gas pipeline on Monday, Iranian media reported, despite U.S. pressure on Islamabad to back out of the project.Oil and Gas Development Company was down 4.01 Percent to 196.70 rupees. Foods and Fertilizer Engro Corporation fell 4.59 percent to 122.11 rupees, while Fauji Fertilizer was down 4.3 percent to 106.99 rupees.

In the currency market, the rupee ended weaker at 97.85/97.90 against the dollar, compared to Friday's close of 97.70/97.75.Overnight rates in the money market rose to 9.40 percent form Friday's close of 9 percent.