* Locals net sellers by tiny margin in Doha
* But foreign traders net buyers for second straight session
* Abu Dhabi outperforms Dubai because of banking sector
* Saudi extends gains for third session
By Celine Aswad
DUBAI, July 2 (Reuters) - Qatar's stock slumped on Sunday as a deadline for Doha to accept a series of political demands by four Arab states was expected to expire late in the day with no sign of the crisis ending while Saudi Arabia's rally extended for a third session.
Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said at the weekend that the demands were made to be rejected. He insisted Qatar would not close a Turkish military base or shut Doha-based satellite channel Al Jazeera.
The four Arab states have warned they may impose further sanctions if Qatar does not comply; they did not give details, but bankers believe, for example, that Saudi, United Arab Emirates and Bahrain banks might receive official guidance to pull deposits from Qatar.
Doha's stock index retreated 2.3 percent to 8,822 points, erasing most of the 2.9 percent gains it made on June 22, its last trading before it closed for a week-long Eid al-Fitr holiday.
In the final hour of trade on Sunday the index hit an 18-month intra-day low as local traders - which made up a little under three-fifths of the daily traded value on Sunday - were net sellers by a tiny margin for the first time since the crisis erupted on June 5.
Foreign funds, however, took advantage of the recent price dips and were net buyers by a wide margin for a second consecutive session.
This suggested some funds are willing to bear the heightened geopolitical risk because some companies offer attractive dividend yields.
Nevertheless, on Sunday 43 shares dropped and only two rose. Qatar Islamic Bank lost 5.8 percent.
The index is now down 11.1 percent since June 5.
Kuwait's stock index lost 2.2 percent to 6,613 points in very thin trade, heading towards its immediate technical support at the mid-May low of 6,545 points. Telecommunications operator Zain lost 1.7 percent.
In the United Arab Emirates, Abu Dhabi's index rose 0.4 percent on the back of strong gains in some large cap banking shares; Abu Dhabi Islamic Bank climbed 2.6 percent. In neighbouring Dubai, Dubai Islamic Bank fell 1.2 percent, helping take the index 0.3 percent lower.
Saudi Arabia's index extended its strong winning streak for a third session after being shut for a week for Eid al-Fitr and added 0.8 percent. Daily traded volumes shrank by about a half from the average of the previous two sessions.
The index is now up 6.2 percent since June 20 when index compiler MSCI said it would add Riyadh on a watch list for an emerging market upgrade.
The rally has also been supported by the announcement that the kingdom made the architect of the economic reforms, Prince Mohammed bin Salman, next in line to be king at around the same.
Shares of heavyweight National Commercial Bank jumped 6.3 percent on Sunday to a fresh 21-month peak. The majority government owned lender is expected to benefit both from MSCI's decision and the expectation that the ambitious economic agenda may translate to higher future earnings.
Petrochemical shares were also strong with Saudi Kayan Petrochemical adding 1.9 percent.
In Egypt, the index rose 0.7 percent as shares of private equity firm Qalaa Holdings, the most heavily traded stock, climbed 3.8 percent.
* The index gained 0.8 percent to 7,486 points.
* The index fell 0.3 percent to 3,383 points.
* The index rose 0.4 percent to 4,444 points.
* The index fell 2.3 percent to 8,822 points.
* The index advanced 0.7 percent to 13,487 points.
* The index declined 2.2 percent to 6,613 points.
* The index added 0.7 percent to 1,319 points.
* The index dipped 0.03 percent to 5,117 points. (Editing by Saeed Azhar)