* Saudi index pulls back in final hour
* Insurance sector very volatile
* Qatar, Abu Dhabi underperform
* Egypt's Pioneers jumps after approval to offer GDRs
* Telecom Egypt drops on net loss in Q4
By Celine Aswad
DUBAI, March 13 (Reuters) - Speculation over a possible merger between Dubai-based Shuaa Capital and Bahrain's GFH Financial spurred heavy turnover in their shares on Monday, while the banking and insurance sectors dragged the Saudi Arabian stock index lower.
Shuaa climbed 3.2 percent to a seven-year closing high of 1.93 dirhams, bringing its gains to 18.4 percent since Sunday. The Dubai-listed shares of GFH, the market's most heavily traded stock, surged 7 percent while its less liquid Bahrain-listed shares jumped 9.7 percent.
On Sunday Shuaa announced it had agreed to acquire Integrated Capital and Abu-Dhabi based brokerage Integrated Securities, both controlled by Abu Dhabi Financial Group (ADFG), which last November bought 48.36 percent of Shuaa.
In December Shuaa bought a 14.01 percent stake in Bahrain's Khaleeji Commercial Bank, in which GFH owns 47 percent. Meanwhile Integrated Capital has 11.74 percent of GFH, according to Thomson Reuters' data, and one asset manager said its stake was as much as 20 percent counting indirect holdings through investment funds.
The conclusion reached by many investors is that GFH and Shuaa may be preparing a merger, particularly since both have said they plan to expand regionally through acquisitions.
Local news provider MEED quoted ADFG chief executive Jassim Alseddiqi this week as saying Shuaa was in talks with a larger regional financial institution over a potential merger in a deal that could be worth billions of dirhams. He gave no details.
Officials at Shuaa, GFH and ADFG did not respond to requests for comment. Dubai's index rose 0.6 percent on Monday, with gainers narrowly outnumbering losers 16 to 14.
The Saudi index, which traded briefly in positive territory, closed 0.7 percent lower. Banks were weak, with all but two of the 12 listed lenders declining; Samba Financial Group dropped 3.3 percent.
Insurance shares traded higher for most of the session before falling steeply. Amana Cooperative Insurance Co lost 2 percent after surging as much as 8.0 percent earlier in the day. On Monday it said its accumulated losses had been reduced below 50 percent of its capital.
Industry experts say there are too many players in the market and the top five insurance firms control more than three-quarters of the industry's market share. Small-sized Sanad Cooperative Insurance said at the end of last week that it was planning voluntary liquidation.
"In my opinion consolidation in the industry would make more sense than for companies to dilute or shut down, and so we may see more mergers and acquisitions happening in the near future," said Joseph Bahou, managing director at Jeddah-based Insurance Brokerage House.
Medical supplier Al Hammadi Co jumped 3.6 percent despite saying it plans not to distribute a cash dividend for 2016, intending instead to use the retained earnings to expand its operations.
Qatar's index retreated 1.2 percent; Qatar Gas Transport dropped 4 percent as it went ex-dividend while the largest listed stock, Qatar National Bank fell 2.7 percent.
Abu Dhabi's index also closed 1.2 percent down as heavyweight First Gulf Bank dropped 3.6 percent.
But Eshraq Properties, a small-sized real-estate developer, added 3.5 percent; Integrated Capital has a 9.47 percent stake in Eshraq.
Egypt's index edged up 0.1 percent, with declining shares outnumbering advancing ones by 21 to eight.
Financial firm Pioneers Holding jumped 4.1 percent in unusually heavy trade after the board approved converting up to one third of its capital into global depository receipts in London, allowing international investors to trade the shares of the company in U.S. dollars.
Telecom Egypt fell 3.1 percent after swinging to a fourth-quarter net loss of 513 million Egyptian pounds ($29 million), compared with a net profit of 868 million pounds in the prior-year period.
Consolidated revenue for the period rose 28.9 percent and management said profitability during the period was impacted by "prudent accounting treatment". The board recommended a cash dividend of 1 pound per share, higher than last year's 0.675 pound.
* The index fell 0.7 percent to 6,788 points.
* The index added 0.6 percent to 3,501 points.
* The index lost 1.2 percent to 4,382 points.
* The index fell 1.2 percent to 10,361 points.
* The index declined 0.5 percent to 6,712 points.
* The index edged up 0.1 percent to 12,929 points.
* The index lost 0.4 percent to 5,716 points.
* The index added 0.4 percent to 1,371 points.
Editing by Andrew Torchia and Louise Heavens