Middle East stocks slump amid real estate fears

By Thomas Atkins

DUBAI (Reuters) - Middle East stocks slumped to multi-year lows on Tuesday as speculation intensified that a five-year Gulf property boom was over and developers could be forced to merge as financing conditions deteriorate.

Ambitious Gulf developers have unveiled $100 billion (56.9 billion pounds) in new projects in the past two days and officials have tried to restore confidence in the market, but investors focussed instead on Europe's spreading banking crisis and falling global markets.

Shares in Saudi Arabia, the biggest Arab equity market, fell 7.7 percent to their lowest level since the index was reformulated in 2007, while Egypt's main index fell 16 percent to erase all gains since mid-2006.

"The selling today is ridiculous. It's a panic. People have been following the markets in Europe and the States," said Hashem Ghoneim, chief executive of Cairo-based brokerage El Nour Securities.

The Saudi Arabian Monetary Agency (SAMA), the kingdom's central bank, admitted it faced problems supplying liquidity to the dried-out financial sector while managing rampant inflation.

"People are worried about the potential repercussions," said Fadi Alajaji, economist at SAMA. "We are greatly affected by the changes affecting the global economy. This raises fears among investors."

In the energy-exporting Gulf, the source of investment for much of the Middle East, speculation intensified that the government would force Dubai developers Deyaar and Union Properties to merge as financing conditions worsened, analysts and traders said.

Investors ignored company statements that downplayed the tie-up talk and focussed instead on the need for builders in general to bulk up in the face of a looming downturn.