MIDEAST STOCKS-Gulf stocks slide, Kuwait suspends trading as Iran responds to US, Israeli attacks

By Ateeq Shariff

March 1 (Reuters) - Most Gulf equities fell on Sunday and Boursa Kuwait suspended trading after U.S. and Israeli strikes on Iran prompted retaliatory attacks across nearby U.S. targets in Gulf cities, fanning fears of prolonged regional instability.

Witnesses reported blasts in the Dubai area and over Doha for a second day on Sunday, as Iran's retaliation for U.S.-Israeli strikes that killed Iranian leader Ayatollah Ali Khamenei forced major regional airports including Dubai to shut, in one of the biggest disruptions to global aviation in years.

Trading in Middle East markets is an early indicator of how investors measure any impact on assets from oil to safe-haven currencies and gold. Analysts at Barclays raised their Brent crude forecast to about $100 a barrel on Saturday from an earlier estimate of $80.

In a rare move, Boursa Kuwait .BKP suspended trade until further notice citing the "exceptional circumstances" the country is facing.

In Saudi Arabia, the region's biggest stock market, the benchmark index .TASI pared its losses to close 2.2% lower compared with a 4.6% drop early in the session.

Decliners included Al Rajhi Bank 1120.SE at 3% and budget airline flynas 4264.SE at 6.9%, its biggest intraday fall since its IPO in June last year.

Elsewhere, Jabal Omar Development 4250.SE - which runs the Jabal Omar complex of hotels and property within walking distance of the Grand Mosque in the Muslim holy city of Mecca - was down 2.6%. Saudi shipping firm Bahri 4030.SE declined 4.2%.

Oil behemoth Saudi Aramco 2222.SE, however, advanced 3.4%, registering its biggest intraday gain in over four months amid expectations of rising oil prices.

The kingdom on Saturday said Iran had attacked Riyadh and the country's eastern region.

"GCC markets are likely to remain under pressure as investors price in a higher and potentially prolonged geopolitical risk premium following the recent escalation in the region," said Tahir Abbas, head of research at Oman's Ubhar Capital.

"While higher oil prices provide a near-term fiscal cushion for regional governments, the more material concern is the risk of affected shipping routes, particularly through the Strait of Hormuz, which would have broader implications for energy flows and trade."

Gulf stock markets face heightened correction risk and volatility as geopolitical tension drives a risk-off mood, pressuring prices and expectations, said XTB MENA senior market analyst Hani Abuagla.

Investors will track regional developments and any further escalation or real-economy damage could deepen the selloff, he said.

The Muscat stock index .MSX30 trimmed its decline to 1.4% after sliding more than 3% in a broad-based selloff.

Bahrain's stock index .BAX retreated 1%, while Qatar's stock exchange was closed for a bank holiday.

Outside the Gulf, Egypt’s blue-chip index .EGX30 settled 2.5% down, after it plunged 5.5% in early trade.

Disruption to shipping traffic through the Strait of Hormuz also remains a key risk, weighing on sentiment and disrupting normal operations across a range of sectors, Abuagla said.