* Egypt blue-chip index jumps 3.4 percent
* Foreign funds are heavy buyers
* Qatar's Al Rayan surges on merger plan
* Saudi falls but SABIC, Mobily buck downtrend
* Dubai retreats further from technical resistance
By Celine Aswad
DUBAI, Dec 20 (Reuters) - Egypt's blue chip stock index surged to a record high on Tuesday while Qatar's market was supported by a potential $44 billion bank merger but other major Gulf bourses were dampened by profit- taking.
Cairo's index jumped 3.4 percent to 12,148 points, exceeding its previous all-time high of 12,039 points reached in April 2008. The index is up 6.6 percent over the last two days and up a spectacular 73.4 percent since the start of the year.
Shares favoured by foreign funds were the top performers, with Global Telecom Holding leaping 12.9 percent. The broader EGX100 index rose 1.0 percent.
The market has been in a strong uptrend since the Egyptian pound was floated on Nov. 3, weakening the currency and making stock prices much more attractive to foreign investors.
"The primary reason is that the market is perceived as an inflation hedge in Egypt, particularly in a context where EGP is at an all-time low and there are further expectations for inflation to continue to creep up," said Mohamed Eljamal, managing director of capital markets at Abu Dhabi's Waha Capital.
Foreign funds were net buyers by a margin of about $6 million on Tuesday, exchange data showed. Mohamad Al Hajj, senior research analyst at EFG Hermes, said that since on Nov. 3, the market had seen its longest unbroken stretch of inflows from international funds since late 2007.
"Fresh money is coming into the capital markets, helping boost liquidity, and funds are positioning their portfolios for what they expect to be a top-performing market on both the Middle East and emerging market levels in 2017."
Both Eljamal and Hajj said Egypt's macroeconomic backdrop was positive following last month's agreement on an International Monetary Fund loan programme.
The market was expecting structural reforms being implemented in both monetary and fiscal policy to support credit growth, investment and ultimately corporate earnings growth.
Analysts at Naeem Brokerage predicted Egypt's economic growth would slow in 2017 to 3.5 percent from 4.3 percent this year because of an anticipated drop in household consumption following austerity measures, including introduction of a value-added tax and fuel price hikes.
But they were positive on equities in the near term.
"Contrary to our macroeconomic view, however, past precedents of IMF bailouts indicate a strong one-year momentum (100 percent upside) for the EGX, with investors discounting longer-term positives quite swiftly," the analysts said.
Qatar's Masraf Al Rayan jumped 6.1 percent after the Islamic lender announced it was in initial talks with Barwa Bank IPO-BABK.QA and privately listed International Bank of Qatar to merge, in a deal that would create the second largest bank in Doha with assets of over $44 billion.
The possible consolidation spurred interest in other lenders, with the largest bank by assets, Qatar National Bank , adding 2.5 percent. The main Qatar equities index climbed 1.2 percent.
But selling of blue chips weighed on the Saudi Arabian index , which pulled back 0.7 percent. National Commercial Bank lost 2.2 percent and Rabigh Refining and Petrochemical fell 2.1 percent.
Saudi Basic Industries, however, recovered 0.3 percent after it dropped 3.7 percent on Monday in response to its plan to cut its second-half cash dividend from a year earlier.
Telecommunications operator Mobily added 1.6 percent in heavy trade after saying it had sealed a 2 billion riyal ($533 million) credit facility from Alinma Bank. Alinma closed 0.7 percent lower.
In Dubai, the index fell 0.8 percent to 3,505 points, retreating further from technical resistance on the August peak of 3,624 points, which it tested and failed to break decisively last week. Emaar Properties retreated 1.9 percent.
* The index fell 0.7 percent to 7,031 points.
* The index jumped 3.4 percent to 12,148 points.
* The index lost 0.8 percent to 3,505 points.
* The index was flat at 4,479 points.
* The index gained 1.2 percent to 10,394 points.
* Kuwait's index rose 0.2 percent to 5,668 points.
* The index fell 0.3 percent to 5,715 points.
* The index rose 0.2 percent to 1,191 points.
Editing by Andrew Torchia; Editing by Tom Heneghan