UPDATE 4: Dubai's DFM falls to its lowest close since February 9, 2009.
Saudi Arabia's index TASI ended lower for a sixth session in seven as end-of-quarter selling weighed.
Saudi Basic Industries Corp (SABIC) fell 1.4 percent, Saudi Electricity Co dropped 1.6 percent and Saudi Arabian Fertilizers Co (Safco) lost 2.7 percent.
"There's no reason for the market's decline - global markets, oil and US futures are up - perhaps it's because today is the last day of the quarter," said Hesham Abo Jamee, Bakheet Investment Group head of asset management. "Expectations are for Q2 earnings to be good for most companies."
Bakheet forecasts combined bank profits will rise 8 percent quarter-on-quarter, Jamee said.
"After the financial statements are issued, investors will again buy stocks and prices should increase, especially in the petrochemicals sector," Jamee added.
The index fell 0.7 percent to 6,094 points, taking its losses to 3.9 percent since June 23. Traders said regional markets are closely tracking the Dow Jones industrial average, which has fallen 4.2 percent over the same period.
Oil was up 0.1 percent at $76.00 a barrel at 1234 GMT.
Shuaa Capital tumbled after the chief executive of its brokerage arm resigned, heading losers on Dubai's index DFM, which slumped to a new 16-month low.
Shuaa fell 6.3 percent, its lowest finish for more than a year. Shuaa Securities chief executive Mohammed Yasin will leave the firm at the end of August.
Union Properties dropped 3.2 percent and Drake & Scull slid 3 percent.
The index fell 1.4 percent to 1,462 points, its lowest close since February 9, 2009.
"Today was a reaction to the aggressive sell-off on international markets following disappointing economic numbers from China and there's a lack of interest locally in our markets so they are moving lower," said Marwan Shurrab, vice-president and chief trader at Gulfmena Alternative Investments.
"China and Asia had been expected to lead growth in 2010, while the Europe and the US were facing problems."
On Tuesday, a Chinese economic indicator was revised downwards, hitting global sentiment.
Abu Dhabi's benchmark ADI also declined, falling 0.7 percent to 2,514 points, with property stocks the hardest hit.
Aldar Properties and Sorouh Real Estate lost 3.5 and 4.9 percent respectively.
"Abu Dhabi real estate stocks are following the high beta names in Dubai - there's no appetite from long-term investors and short term investors took intraday positions before selling off at the end of the session," said Shurrab.
Kuwait's index KWSE fell for a fifth day in six to a two-week low, as downbeat global sentiment outweighed local end-of-quarter window dressing, with doubts increasing about the health of the world economy.
Zain fell 1.8 percent, National Bank of Kuwait dropped 1.7 percent and Gulf Bank slid 2.4 percent.
The index fell 0.7 percent to 6,543 points, its lowest finish since June 16.
"Even with end-of-quarter window dressing, the market still fell because of what has been happening on global markets, so you can imagine how Kuwait will perform tomorrow, especially with the index breaking a support at 6,600 points," said a Kuwait analyst who asked not to be identified.
"The index is heading towards 6,200 to 6,300 points in the near to medium term."
Qatar's benchmark QSI was also in retreat, dropping 1 percent to 6,900 points to a three-week low as losers outnumbered gainers 17 to one.
Industries Qatar dropped 2.3 percent, with the stock seen as a proxy for world trade. Vodafone Qatar and Commercial Bank of Qatar each dipped 1.8 percent.
World stocks steadied on Wednesday after their biggest one-day plunge in over a year but fresh banking stress and fears of a double-dip global recession preyed on investors on the final day of a turbulent second quarter.
Oman's index MSI ended lower for a sixth session in seven, but a turnaround in oil prices and a positive opening to trade on European markets limited declines.
Bank Muscat fell 2.4 percent and Bank Dhofar dipped 0.8 percent, but other bluechips recovered some of their recent losses. Oman Telecommunications Co (Omantel) gained 1.3 percent and National Bank of Oman added 1.6 percent.
"Quarter end window dressing was observed among selected stocks and this helped pull up their stock price," said Osama Ibrahim Al Qinna, head of Head of Brokerage Division at Oman Arab Bank.
Other shares are under continuous selling pressure, Qinna said, weighing on the index.
"Institutional investors are more active as they are closing their overdraft position at quarter end," he said.
The index slipped 0.2 percent to 6,058 points.
"We believe the market might end the session flattish on the back of positive opening of European markets and slight recovery in oil prices," added Qinna, speaking before the market close.
Oil was up 0.5 percent at $76.29 a barrel at 0920 GMT, but is still heading for its first quarterly drop since 2008 as stresses across financial markets in the past weeks sullied a more positive demand outlook seen earlier in the year.
The London FTSE index was up 0.7 percent. (Reuters)