By Matt Smith
Saudi banks extend gains as investors bet underperforming sector will improve in 2010.
Saudi Arabia's bourse hit a fresh 12 week high on Monday and Qatari and Dubai shares eased away from multi week lows as an upbeat response to earnings in the kingdom lifted sentiment on most regional markets.
Kuwait fell on worries over its financial sector and Oman declined for a fourth day since hitting a 12 week high.
Saudi banks extended gains as investors bet the underperforming sector would improve this year after taking huge provisions in 2009 to steady balance sheets, causing most lenders' quarterly profits to miss estimates.
Rami Sidani, Schroders Middle East head of investment, said: "The banking sector is picking up, despite weak results because the market sees the worst is over."
Kuwait's index fell for the first session in three after National Bank of Kuwait said it would increase its capital by 10 percent and the board of Commercial Bank of Kuwait resigned.
A Kuwait based trader, who asked not be identified, said: "NBK is the third or fourth bank to go for a capital increase - the banks are doing this to avoid capital adequacy issues, heightening worries about banks' provisions."
He added: "It will also draw liquidity from the market when liquidity is already tight, but it's positive in the longer term."
NBK fell 1.8 percent and CBK dropped 3.1 percent.
Shahid Hameed, Global Investment House head of asset management for the Gulf region, said: "The market will be range bound in 2010 because most of the results from the bank sector will be disappointing throughout the year."
He added: "I'm expecting provisions to be a dampener on bank earnings for the whole of this year, which will keep bank stocks in their current narrow range."
Dubai's index ended a six session losing streak as stocks rebounded from Sunday's five week lows, but late selling pressure eroded much of these gains to underline fragile investor sentiment.
Marwan Shurrab, chief trader at Gulfmena Alternative Investments, said:"People are trying to get direction from the market and turnover remains low - there's a lack of interest from institutions so it's day traders trying to benefit from volatility, rather than investors trying to build positions."
He added: "Today's move was mainly down a rebound in Saudi Arabia yesterday, which strengthened sentiment at the pre-open."
Arabtec climbed 4.3 percent, Emaar Properties rose 1.2 percent and Dubai Financial Market added 2.5 percent.
The trio were among the biggest casualties of Dubai's recent slide, each falling 15 percent or more since Jan 7, the last day of trading before Arabtec agreed to sell a 70 percent stake to Aabar Investments in a deal that will dilute existing holdings. Aabar rose 2.2 percent.
Schroders' Sidani said: "The UAE markets have been losing ground on very thin volumes and I don't see enough activity to sustain a rally."
He added: "The market is still waiting for clarity from Dubai World (on its debt restructuring)."
Qatari banks recouped most of the previous day's losses to help Doha's index rise 1 percent.
DP World surged 9.9 percent to a 14 week high, taking its gains to 31 percent since it announced plans to also list in London on Jan 6. (Reuters)