* Higher oil prices are positive for next year
* But austerity policies mean economies will stay sluggish
* Dubai is top performer in Gulf for 2016
* Saudi gains for year after deep slump in mid-2016
* Egypt soars but some funds now consider valuations rich
By Andrew Torchia
DUBAI, Dec 29 (Reuters) - Most Middle Eastern stock markets closed higher on Thursday after a tumultuous year in which many bourses were hit hard by low oil prices, then recovered in the final few months as the economic outlook improved.
Fund managers generally expect a stronger performance in 2017 because of the rebound in oil prices over the past couple of months, and Gulf governments' partial success in stabilising their finances this year.
A Reuters poll of 13 leading Middle Eastern fund managers, published on Thursday, found 62 percent expect to raise their allocations to regional equities in the next three months and none to reduce them - the most bullish view of equities since February 2014, before oil prices began to plunge.
However, economic growth in most countries looks likely to stay modest because of austerity policies as governments continue cutting their deficits. The prospect of more U.S. interest rate hikes next year may also restrain the markets.
Dubai's market was the best-performing in the Gulf this year because the emirate's diverse economy relies relatively little on oil. The index rose 12 percent during the year, and edged up 0.3 percent on Thursday.
Abu Dhabi gained 6 percent during 2016 and climbed 1.7 percent on Thursday because of a 2.5 percent jump in telecommunications firm Etisalat, which saw its highest trading volume since June.
Qatar's index added 1.0 percent on Thursday in a broad-based rally, with all 10 of the most heavily traded stocks rising. It closed flat for the year.
Commercial Bank of Qatar surged 7.6 percent after it invited investors to subscribe to a rights issue between Jan. 8 and 22.
Saudi Arabia's index rose 4 percent during the year, although it was down 23 percent at one stage. It fell 0.4 percent on Thursday as petrochemical stocks pulled back, with Saudi Basic Industries dropping 1.1 percent.
Nama Chemicals plunged its 10 percent daily limit as it resumed trading. The exchange had suspended its shares for a day because its accumulated losses had reached more than 75 percent of its capital.
Egypt's index rose 0.7 percent on Thursday, bringing its gain for the year to a spectacular 76 percent. The market took off after the central bank floated the Egyptian pound on Nov. 3, making stocks much cheaper for foreign investors and drawing capital inflows that could eventually end the country's endemic hard currency shortage.
Foreign investors have been net buyers of Egyptian stocks every day since the float, according to exchange data; they were buyers on Thursday by a moderate margin.
However, the Reuters poll found fund managers on balance expecting to reduce their allocations to Egypt over the next three months because valuations had risen so high.
* The index fell 0.4 percent to 7,210 points.
* The index rose 0.3 percent to 3,531 points.
* The index climbed 1.7 percent to 4,546 points.
* The index added 1.0 percent to 10,437 points.
* The index rose 0.7 percent to 12,345 points.
* The index edged down 0.1 percent to 5,748 points.
* The index rose 0.3 percent to 5,783 points.
* The index gained 0.6 percent to 1,220 points.
Editing by Larry King