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MIDEAST STOCKS-Emaar's leap lifts Dubai, banks boost Egypt

* Emaar in biggest one-day rise since June 2017

* Dubai's largest increase in 2-1/2 months

* Egypt's El Sewedy jumps on Tanzania deal

* Morgan Stanley reiterates overweight view on Saudi

* Saudi Steel Pipes, Arabian Pipes gain on Aramco contracts

By Shakeel Ahmad and Ateeq Shariff

Dec 12 (Reuters) - The Dubai stock market rose sharply on Wednesday, boosted by blue chip Emaar Properties, while Egypt gained for a third straight day on rebounding bank shares.

In Dubai, which has been languishing at five-year lows partly because of weak real estate prices, the index added 1.5 percent, its biggest gain in 2-1/2 months.

Emaar surged 6.4 percent, its largest rise since June 2017, after saying it had started business development operations in China. A cheap valuation, at 5.4 times trailing earnings, also encouraged buying back of the stock.

Deyaar Development increased 4.1 percent but another Dubai real estate stock, Union Properties, which has lost more than half its value this year to touch a multi-year low, slid a further 2.6 percent.

Outside the real estate sector, Takaful Emarat rose 4.1 percent after Goldilocks Investment, part of Abu Dhabi Financial Group, bought a 29.5 percent stake in the firm.

The Egyptian blue-chip index was up 1.5 percent with its biggest bank, Commercial International Bank, increasing 3.2 percent. Banks have tumbled in recent weeks on concern about proposed heavier taxation on their Treasury holdings, but the stocks' rebound may mean that factor has faded.

El Sewedy Electric jumped 6.2 percent when it resumed trading in the last half hour. Trading had been halted pending details of a deal it signed to participate in construction of a $3 billion dam in Tanzania.

Global Telecom soared 9.7 percent. The Egyptian exchange said 34.4 million shares of the company were block-traded for 109.9 million pounds ($6.2 million).

Saudi Arabia's index gained 0.7 percent with its largest lender, National Commercial Bank, climbing 2.9 percent and top petrochemical maker Saudi Basic Industries gaining 0.7 percent.

Brent oil rose to about $61 a barrel on Wednesday, supported by an industry report showing a drop in U.S. crude inventories, a cut in Libyan exports and an OPEC-led deal to trim output.

In a report this week, Morgan Stanley research said it was keeping an off-benchmark "overweight" view of Saudi equities. Global emerging market funds are minimally invested in the market while its upgrade to emerging market status by international index compilers implies a weighting of 2.6 percent by August 2019, it said.

"We found that Saudi Arabia has tended to outperform both emerging markets and EEMEA (Eastern Europe, Middle East and Africa) during historical bear markets. This thesis is playing out and we expect Saudi Arabian equities to continue to outperform from here if markets correct further," it added.

Saudi Steel Pipes added 2.9 percent and Arabian Pipes was up 2.0 percent after both companies said they won contracts to supply pipes to Saudi Aramco.

The Qatar index dropped 0.5 percent, weighed down by banks and telecommunications firm Ooredoo, which shed 3.0 percent.

Doha Bank fell 1.9 percent. The bank will cut its exposure to construction companies to 10 percent from 17 percent of lending in the next three years, as part of an effort to adjust to a building industry downturn following a slump in oil prices, its chief executive told Reuters on Tuesday.

SAUDI ARABIA * The index rose 0.7 percent to 7,890 points.

DUBAI * The index added 1.5 percent to 2,573 points

ABU DHABI * The index rose 0.5 percent to 4,838 points

QATAR * The index lost 0.5 percent to 10,434 points.

EGYPT * The index rose 1.5 percent to 12,857 points

KUWAIT * The index lost 0.4 percent to 5,388 points.

BAHRAIN * The index edged up 0.2 percent to 1,320 points.

OMAN * The index lost 0.3 percent to 4,482 points. (Editing by Andrew Torchia and Kirsten Donovan)