Saudi Arabia's index TASI ended lower for a first session in three, tracking losses on regional and global markets, while slumping oil prices also spurred selling of petrochemical stocks.
Saudi Basic Industries Corp (SABIC) fell 2.2 percent in its biggest one-day decline for nine weeks and rival Rabigh Refining and Petrochemical Co dropped 1.8 percent.
Petrochemical prices were closely tied to crude and with oil falling for a ninth day in 11, investors were selling the sector.
Most other bluechips also declined. Saudi Telecom Co and Samba Financial Group lost 1.1 and 1.8 percent respectively.
The index fell 0.9 percent to 6,256 points.
"Saudi Investors are worried international markets will correct, especially after Obama's bank plan - this will create volatility and could change the direction of global markets," said Youssef Kassantini, head of discretionary portfolio management at Rasmala Investment Saudi.
"It's not a good statement in the short-term, but in the long-term it's positive."
On Thursday, US president Barack Obama announced plans to curb US banks' proprietary trading.
Japan's Nikkei fell 1.8 percent to a five-week closing low and European shares were also down after China implemented a clampdown on lending, spurring fears it could impose further measures to curb soaring loan growth, potentially dampening a global recovery.
China's initiative also raised concerns that tightening moves by the world's second-largest oil user may limit demand. Oil fell 1 percent to $74.52 a barrel at 1225 GMT and was on course for its lowest close for five weeks.
Union Properties tumbled to a seven-week low, a day after Credit Suisse slashed its price target for the troubled developer.
Union Properties fell 6.7 percent to 0.56 dirhams, its lowest level since December 10.
On Monday, Credit Suisse reduced its price target on the stock to 0.03 dirhams from 0.8 dirhams, saying that even if the company overcame its current liquidity squeeze, there wouldn't be much equity value left after meeting its debt obligations
Dubai's index fell 1.8 percent to 1,586 points as most stocks retreated after Standard & Poors downgraded and then withdrew its rating for a unit of Dubai Holding, which is owned by the emirate's ruler.
Emaar Properties dropped 2.9 percent and Arabtec lost 2.7 percent as investors booked profits from Monday's fleeting rally.
Zain fell after reviving plans to buy a majority stake in Palestine Telecommunication Co (Paltel), while most other Kuwait bluechips also declined as investors booked profits from the previous day's four-week high.
Zain fell 1.1 percent and National Bank of Kuwait dropped 1.9 percent.
The index slipped 0.2 percent to 7,069 points.
Bahrain's measure also retreated, slipping 0.2 percent to 1,472 points.
Masraf Al Rayan dropped as investors gave the thumbs down to the lender's dividend plan, weighing on Qatar's index, which slumped to a 27-week closing low.
Al Rayan fell 3.1 percent to 12.50 riyals, despite reporting a 30 percent rise in fourth-quarter net profit.
The lender said it will use its cash dividend to pay down capital. Its initial public offering sold shares at 5 riyals each, while the nominal value was set at 10 riyals, effectively giving subscribers a 50 percent discount. The bank is now using dividend money to go some way to meeting the shortfall between the IPO and nominal prices.
Other Qatar shares also struggled, with Industries Qatar falling 1.5 percent and Qatar Gas Transport Co (Nakilat) dropping 3.2 percent. These stocks were seen as proxies for rising world trade and so were being sold off, with international markets downbeat as fresh doubts emerged over a global economic recovery.
The index fell 2 percent to 6,576 points, its lowest finish since July 23.
Bank Muscat hit a two-week high after announcing a full-year dividend, helping Oman's index end higher for a second day.
Bank Muscat climbed 4.8 percent, despite reporting a fourth-quarter loss on larger-than-expected provisions.
"Going forward, it looks like the bank has written off its bad loans and the market doesn't expect it to make further provisions," said Sayed Quadry, vice-president of business development at Amwal Investment in Muscat.
"That was the reason for the buying today, but let's see how the stock performs over the next week. After two days of gains, I would expect some profit-taking on the market tomorrow."
Bank Dhofar climbed 4 percent, but other stocks were mixed, with Oman Telecommunications Co (Omantel) falling 1.5 percent, hitting an intraday month low.
The index climbed 0.5 percent to 6,439 points.
Al-Rajhi Bank and Saudi Basic Industries Corp (SABIC) edged higher as Saudi Arabia's index was steady in the face of declines on other regional markets.
Rajhi climbed 0.7 percent and SABIC added 0.3 percent. This pair were the two largest listings on the Saudi index, which slipped 0.02 percent to 6,314 points.
"The probability of witnessing further selling is high despite the fact that the short term trend remains positive," Shuaa Capital wrote in a research note.
Banque Saudi Fransi fell 0.7 percent and Saudi Telecom Co slipped 0.2 percent. (Reuters)For all the latest market news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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