MUMBAI, Nov 27, 2008 (AFP) - Deadly attacks in India's financial hub Mumbai could further dent confidence in a nation already reeling from a huge withdrawal of foreign funds from a once booming stock market, analysts say.

Suspected Islamic militants on Wednesday invaded luxury hotels, including the Taj Mahal Palace, restaurants and the main train station in India's commercial heart, killing at least 100 people and injuring about 300.

"The terrorists attacked major landmarks in India's financial capital, targeting spots popular with foreigners to destabilise markets and scare off tourists," said Nikhilesh Bhattacharyya, an economist at Moody's Economy.com.

Authorities shut down the stock, bond and foreign exchanges as troops surrounded the Taj and Oberoi-Trident five-star hotels Thursday that had been stormed by gunmen with automatic weapons and grenades.

"The greatest significance is the scale they've achieved and also the elite nature of their targets - five-star hotels and restaurants," said Ajai Sahni, head of the New Delhi-based Institute for Conflict Management.

"There has been a continuing attempt to undermine India's economy over the past four or five years and this is part of it," he told AFP.

"If we keep seeing attacks of this magnitude, perceptions of India's security are going to shift and it will impact directly on investment decisions."

In the most immediate fallout, England decided to abandon their current cricket tour of India.

A group calling itself the "Deccan Mujahedeen" claimed responsibility for the Mumbai attacks, fuelling a belief India is confronting a home-grown Islamic militancy.

The city of 18 million people has bounced back after other big strikes, most recently after bomb blasts targeting railway commuters in 2006 killed 186 people and injured nearly 800, Bhattacharyya noted.

But analysts said this attack was aimed at scaring away foreign investors and tourists in one of Asia's fastest-growing economies.

Witnesses said the gunmen had specifically looked for US and British citizens to take hostage.

The timing of the attack may also "be more unfortunate" with banks facing major outflow of funds due to the global financial crisis, the central bank struggling to defend a rupee at record lows and the economy slowing,
Bhattacharyya said.

"It will have fairly dramatic implications, India is fairly accustomed to attacks but this is a high profile attack - the Taj is a bit like New York's Twin Towers in the Indian context," said a Singapore foreign investment banker who was not authorised to speak to the press.

"It certainly does not come at a good time with the economy at a vulnerable moment with a liquidity run. It's a major attack on the financial heart of the nation and tourism - clearly designed to have maximum impact," he said.

"These images being flashed around the world are not going to be helpful, the effect on investor sentiment and tourism will be pronounced," said another banker whose investment house had asked him not to comment publicly.