December 14, 2016 / 2:36 PM / 8 months ago

MIDEAST STOCKS-Gulf pulls back on caution before expected U.S. rate hike

* Petrochemical sector weighs on Saudi

* Retail shares weak on expected subsidy cuts in 2017 budget

* Egypt's OTMT slumps further as investors lack clarity

* Dubai falls below resistance at August peak

* Abu Dhabi, Qatar dragged lower by blue chips

By Celine Aswad

DUBAI, Dec 14 (Reuters) - Stock markets in the Gulf retreated on Wednesday in shrinking trading volumes as investors turned cautious ahead of the U.S. interest rate hike and guidance from the U.S. central bank expected late in the day.

Petrochemical shares, which have been dragging Saudi Arabia's main index lower over the last two sessions, fell further. The main index lost 0.6 percent and all but one of the 14 listed petrochemical producers fell. PetroRabigh dropped 3.3 percent.

Many analysts think the Saudi market's uptrend is not reversing but stocks may take an extended breather following a stellar performance over a six-week period which took the index to a one-year high earlier this week.

Wednesday marked the market's second consecutive day of shrinking trading volume. The 2017 budget, expected to be announced late this month, looks likely to include more domestic fuel subsidy cuts, which is prompting some investors to cash out of domestic demand-focused shares for now.

Electronics and bookstore retailer Jarir fell 1.3 percent.

In Egypt, the main index pulled back a further 0.6 percent with selling pressure escalating in the final hour of trade.

Losers outnumbered gainers 24 to five with Orascom Telecom , the most heavily traded share, slumping 5.2 percent. Shares in the conglomerate have been beaten down 20 percent since the company said its chief executive, billionaire Najuib Sawiris, announced early this month that he would step down.

The company did not give a reason for his departure, and analysts said the uncertainty had hit investor sentiment hard.

"Saying they are shutting down banking operations in North Korea and that their long-time CEO is leaving in one month's time has left investors feeling battered," said a Cairo-based equity analyst.

Dubai's index fell for a second straight day, dropping 1.2 percent to 3,584 points. It retreated below major technical resistance on its August peak of 3,624 points.

Trading volume shrank by roughly a half from the previous day's very large amount. Most activity focused on mid-sized speculative shares, suggesting local short-term traders were the main players and that foreign investors, who had been active buyers in previous days, had pulled back.

Builder Drake & Scull, the most heavily traded stock, fell 1.8 percent. Union Properties lost 1.7 percent.

Profit-taking also hit Abu Dhabi, dragging the index down 0.9 percent. Telecommunications operator Etisalat fell 1.3 percent and First Gulf Bank dropped 1.9 percent.

Qatar's main index, which had outperformed its regional peers on Tuesday, retreated 0.4 percent. Commercial Bank lost 3.1 percent to 32.40 riyals on the first day of trading of its rights issue, which will end on Dec. 28. The bank is offering new ordinary shares at 25.50 riyals each.

WEDNESDAY'S HIGHLIGHTS

SAUDI ARABIA

* The index fell 0.6 percent to 7,066 points.

EGYPT

* The index lost 0.6 percent to 11,317 points.

DUBAI

* The index fell 1.2 percent to 3,584 points.

ABU DHABI

* The index lost 0.9 percent to 4,497 points.

QATAR

* The index retreated 0.4 percent to 10,359 points.

KUWAIT

* Kuwait's index was flat at 5,672 points.

BAHRAIN

* The index was flat at 1,188 points.

OMAN

* The index added 0.1 percent to 5,737 points.

Editing by Andrew Torchia and Tom Heneghan

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