Middle East stocks fall after three day rally

Stocks in the UAE fell on Tuesday, ending a three day rally as analysts warned worries over Dubai's debt position remain high on investors' minds despite Monday's $10 billion bailout from Abu Dhabi.

Most other Middle East benchmarks also declined, with traders booking profits from Dubai led early week gains.

Matthew Wakeman, managing director for cash and equity linked trading, EFG Hermes, said: "The momentum is now negative going into tomorrow."

Dubai's index fell 1.5 percent after being up almost 7 percent in early trading as most stocks reversed early gains, having failed to break technical resistance levels.

Amed Hamdi, senior relationship manager, Prime Emirates, said: "The market is searching for a price level that is acceptable to both buyers and sellers and until this is found there will be volatility."

Dubai's measure rose 10.4 percent on Monday in its biggest gain for 14 months after Dubai World said property unit Nakheel would repay a maturing Islamic bond following Abu Dhabi's cash injection.

Wakeman added: "The initial euphoria on the Nakheel payment is now yesterday's chip wrapper and we now have to trade on the restructuring story which could take months to come together."

Dubai World has asked for a standstill as it tries to restructure $26 billion of debts.

Vyas Jayabhanu, head of investments, Al Dhafra Financial Broker, said:"Dubai World ... has finance until April but (what) will happen after that? There are a lot of unanswered questions."

On Tuesday, Moody's placed four UAE banks on review for downgrade.

John Tofarides, a Moody's analyst, said: "The Dubai World incident will have further repercussions on the already weakened corporate scene in Dubai.

"Moody's also expects the prevailing difficult economic conditions in Dubai to lead to a further rise in distressed loans over the foreseeable future."

Abu Dhabi's index dropped 1 percent. Heavyweight Emirates Telecommunications Corp (Etisalat) was the main drag, falling 4.7 percent lower. Other blue chips extended gains, with property and banks the biggest winners.

Jayabhanu added: "Abu Dhabi will remain the safe haven of the UAE - investors are not prepared to leave cash in the Dubai market, they're adopting a wait and see approach."

The Saudi, Qatar and Oman indexes each fell for the first session in four as industrials and banks declined.

Hesham Abo Jamee,head of asset management, Bakheet Investment Group, said: "It's profit taking after the sharp increase yesterday.

"The (Saudi) market should be stable until the end of the year, maybe moving a little bit higher - everybody is waiting for the full-year results."

Kuwait's measure hit a three week high despite Agility falling 1.3 percent ahead of a U.S. court hearing expected later on Tuesday, where it is accused of overcharging the U.S. Army $60 million.

(Reuters)