Nuclear-armed neighbours India and Pakistan have announced a raft of measures against each other as tensions mount after 26 men were killed in an attack targeting Hindu tourists in Kashmir last month.

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

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.