* Qatar banks drop; downgrade may raise funding costs
* Lowest trading volume in Dubai since September 2015
* Saudi's Amiantit jumps on merger of European entities
* Development Works Food up on Q2 earnings
* Egypt blue-chip index strong but broad index lower
By Andrew Torchia
DUBAI, Aug 29 (Reuters) - Qatar's stock market dropped on Tuesday after Fitch cut the country's credit rating, while most other Gulf bourses fell in thin trade but Egypt's blue-chip index gained strongly, helped by investment firm Qalaa Holdings.
Fitch lowered Qatar by one notch to AA-minus with a negative outlook on Monday, citing the impact of sanctions imposed by other Arab states on Doha. That brought Fitch into line with the other two major rating agencies, Moody's and Standard & Poor's.
The downgrade threatens higher funding costs for Qatari banks as they seek to replace deposits and loans that are being withdrawn by the other Arab states. Most bank shares fell on Tuesday as Qatar National Bank lost 1.3 percent.
The Qatari index slipped 0.9 percent to its lowest close since early July. Among other active stocks, Qatar Gas Transport (Nakilat) dropped 2.8 percent.
Turnover was thin in other Gulf markets as many investors stayed away with the approach of Eid al-Adha holidays beginning this week; the holidays start in Saudi Arabia on Wednesday and in the United Arab Emirates on Thursday.
In Dubai, the index edged down 0.1 percent with daily trading volume hitting its lowest level since September 2015 for a second straight day. GFH Financial, the most active stock, gained 1.7 percent.
Dana Gas retreated 1.5 percent in Abu Dhabi, helping pull the index there down 0.5 percent.
Saudi Arabia's index edged down 0.04 percent as industrial pipe maker Amiantit jumped 6.5 percent in unusually heavy trade after saying it expected a capital gain of 50-60 million riyals ($13.3-16.0 million) and positive cash flow of between 2 and 4 million riyals in the third quarter due to the merger of its European entities.
Development Works Food surged 4.9 percent after reporting second-quarter net profit rose by almost two-thirds from a year earlier as revenues more than doubled.
In Egypt, the blue-chip index climbed 1.4 percent as Qalaa, which had jumped 8.9 percent on Monday after one of its units sold its stake in an Ethiopian company in a deal worth $14.5 million, added a further 3.4 percent; it was the most active stock. Commercial International Bank, the biggest lender, rose 1.6 percent.
Investment bank EFG Hermes gained 2.3 percent and GB Auto surged 8.1 percent in its heaviest trade for a month. The broad EGX100 index fell 0.3 percent, however.
* The index edged down 0.04 percent to 7,259 points.
* The index edged down 0.1 percent to 3,611 points.
* The index dropped 0.5 percent to 4,464 points.
* The index lost 0.9 percent to 8,859 points.
* The index rose 1.4 percent to 13,194 points.
* The index edged down 0.1 percent to 6,899 points.
* The index edged down 0.1 percent to 1,299 points.
* The index gained 0.9 percent to 5,047 points. (Reporting by Andrew Torchia; Editing by Dale Hudson)