MIDEAST STOCKS-Egypt surges 2.2 pct, ignores U.S. aid cut-off

Reuters

* Gulf's aid much more important to Egypt than West's

* Cairo index highest since September 2012, near chartbarrier

* Most Gulf markets move narrowly in thin pre-holiday trade

* But speculative stocks boost Dubai

* Oman's Galfar Engineering falls after executive questioned

By Olzhas Auyezov

DUBAI, Oct 10 (Reuters) - Egyptian stocks jumped 2.2 percenton Thursday to their highest level since September 2012 afterthe United States cut off some aid to Cairo - underlining howmany investors now see the key to economic recovery as aid fromEgypt's Gulf allies, not the West.

The main index rose to 5,932 points, nearing majortechnical resistance at 6,025 points, the September 2012 peak.It broke above this year's high of 5,884 points, hit in January.

The market has been rallying for most of the time sinceIslamist President Mohamed Mursi was deposed in early July, andmany local investors have not been deterred by politicalbloodshed since then, viewing it as a necessary price for thearmy-backed government to establish control.

Mohamed Radwan, director of international sales at Egypt'sPharos Securities, noted that local retail investors, the maindriver of the recent rally, were mainly supporters of thegovernment.

There have also been signs in recent days that some foreigninstitutional investors are starting to return to Egypt;foreigners were net buyers by a large margin on Thursday,according to bourse data.

The U.S. aid cut, designed to pressure Cairo to do more fordemocracy and human rights, will deprive it of militaryequipment as well as $260 million in cash aid.

But it is dwarfed by the $12 billion in aid which Egypt'sGulf allies, pleased by Mursi's downfall, promised in July. In areport on Thursday, Fitch Ratings said the U.S. action wouldhave little impact on Egypt's external position and would notaffect key indicators such as foreign reserves.

Trade and industry minister Mounir Fakhry Abdel Nour toldReuters that the government planned a second economic stimuluspackage worth billions of dollars early next year. That willalmost certainly be made possible by Gulf money.

"Another factor is a decline in local interest rates after alot of Gulf countries provided financial aid to Egypt, reducingpressure on public finances," said Simon Kitchen, a strategistat EFG-Hermes in Cairo.

"This has pushed local retail investors and institutionsinto the stock market."

However, he added: "My concern is that it's a little biteuphoric. There is still uncertainty on the political scene, youstill have terrorist attacks continuing as well as the adverserelationship between the Muslim Brotherhood and the government.

"Foreign investors haven't been really participating in thisrally seen in the last few months and without foreign investors,it is hardly sustainable."

GULF

In the Gulf, markets were supported by hopes that U.S.politicians were inching towards resolving the crisis over theU.S. debt ceiling. But with Gulf markets due to be closed nextweek for long Eid holidays, trade was narrow and turnover wasthin.

Dubai was buoyed by buying in some speculative stocks suchas Dubai Investments, seen as a play on hopes that theemirate will win in late November the right to host the 2020World Expo. The stock rose 2.9 percent, while the Dubai index climbed 1.2 percent.

Oman's Galfar Engineering and Contracting dropped1.2 percent after the company said its managing director hadbeen called for questioning by "concerned authorities".

Galfar did not name the executive or provide any additionaldetails, such as why he was being questioned; calls to thecompany and Omani authorities did not provide additionalcomment.

The small number of third-quarter Gulf corporate earningsannounced before the Eid holidays have been mixed, with severaldisappointments among Saudi Arabian banks. After Thursday'sclose, Al Rajhi Bank, Saudi Arabia's largest listedlender, said net profit fell 8.1 percent to 1.72 billion riyals($458.6 million); analysts had on average expected a profit of2.08 billion riyals.

THURSDAY'S HIGHLIGHTS

EGYPT

* The index gained 2.2 percent to 5,932 points.

OMAN

* The index ticked up 0.05 percent to 6,652 points.

QATAR

* The index fell 0.2 percent to 9,724 points.

SAUDI ARABIA

* The index rose 0.07 percent to 7,983 points.

ABU DHABI

* The index slipped 0.2 percent to 3,842 points.

DUBAI

* The index rose 1.2 percent to 2,831 points.

KUWAIT

* The index went up 0.8 percent to 7,767 points.

BAHRAIN

* The index rose 0.3 percent to 1,195 points.

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