* Mideast markets seen following divergent paths
* Egypt stock market already priced in Nov. 28 poll jitters
By Matt Smith
DUBAI, Nov 10 (Reuters) - Markets in the United Arab Emirates are seen underperforming regional and global peers next week as downbeat earnings suggest the troubles dogging the country's once-mighty property sector are far from over.
The Saudi and Kuwaiti bourses are expected to be shut all week for the Eid al-Adha holiday, celebrating the end of the Muslim pilgrimage to Mecca. The exact timing of the holiday will depend on the sighting of the moon.
Other bourses will also have a shortened trading week, spurring traders to book profits ahead of the vacation.
Dubai's index was down 5.4 percent year-to-date to Nov. 10, making it the worst performing Gulf Arab benchmark in 2010 after a slew of disappointing earnings wiped out some of a rally that lasted through September and October.
Builder Arabtec's quarterly profit fell 96 percent, while property earnings have also come in below estimates, pointing to further weakness in the real estate and construction sector, which dominates both the Dubai and Abu Dhabi bourses.
"If global investors want to play the global cyclical trade, it doesn't really exist in UAE markets," Robert McKinnon, ASAS Capital chief investment officer, said.
"The UAE economy is actually doing quite well -- hotel reservations are up, Emirates airlines posted strong results, for example -- but we can't invest in these companies and there's a big disconnect between the stock market and the real economy."
Dubai, home to three man-made palm islands and the world's tallest building, was hit hardest when the UAE property market crashed. Prices are down 58 percent from their 2008 peaks and further declines of 11 percent are forecast because of oversupply and limited liquidity as more projects that broke ground at the top of the boom are only just being completed.
But Abu Dhabi's developers are also struggling, in part because of a contagion from Dubai, but also as a result of over-leverage.
Shares in Aldar Properties, the UAE capital's bellwether, have tumbled ahead of an expected refinancing plan seen as likely to dilute the stakes of minority shareholders.
Aldar has an estimated 14 billion dirhams ($3.81 billion) of debts maturing next year, according to Egyptian investment bank EFG-Hermes, while Bank of America Merrill Lynch this month warned that Aldar needs 9.8 billion dirhams ($2.67 billion) by 2011 as it seeks funding to survive.
"There's not a whole lot of downside and the market should move sideways - I don't foresee a catalyst before the end of the year for UAE markets," McKinnon added.
REGIONAL DIVERGENCE
Middle East markets are seen following increasingly divergent paths between now and the end of the year.
"Performance is likely to split into two halves -- Saudi Arabia, Egypt, Qatar and Oman should outperform and attract foreign investors, but Bahrain, the UAE and Kuwait will be laggards because these markets lack the triggers to move to higher levels," said Shakeel Sarwar, head of asset management at Securities & Investment Co (SICO) in Bahrain.
"Saudi Arabia is a large liquid market, Qatar offers strong economic growth and Egypt is a demographic play, so money will flow into these markets because they have lower perceived risk and higher potential returns."
EGYPT UPBEAT
Egypt's equity market seems to have largely discounted uncertainty linked to a Nov. 28 parliamentary election and a presidential vote in 2011, analysts said.
But volumes on the Egyptian exchange are still relatively weak and investors are awaiting more clarity on central bank interest rate policy before taking longer-term positions.
"It is safe to trade (equities), but not for 'buy and hold'," Lara Ahmed, a technical analyst at Prime Research, said.
"I expect we will have a short-term market bottom... and the market will witness a new rally" once interest rate risk subsides."
Most analysts polled by Reuters have forecast a drop in Egypt's annual inflation rate for October due to lower food prices and favourable base effects. The figures are due for release on Wednesday.
The Egyptian pound fell to its lowest against the dollar since June 2005 in early November but subsequently rebounded after the U.S. Federal Reserve said it would buy $600 billion of government debt to spur the economy.
Central Bank Deputy Governor Hisham Ramez denied intervening to support the pound and said inflation was under control.
The average yield on Egyptian 91-day treasury bills fell to 9.059 percent at an auction from 9.348 percent in late October.
Prime's Ahmed suggested avoiding bank stocks such as CIB and NSGB which seem overpriced.
"I think investors will go to more secure stocks that didn't make a move above their medium-term highs yet," she said.
Egypt's real estate sector may be buoyed by Amer Group, which expects to raise 1.14 billion Egyptian pounds through an initial public offering and a private placement before the end of November.
Palm Hills, Egypt's second biggest developer, posted sales of 1.78 billion pounds ($312 million) on Monday, marking its second consecutive quarter of strong growth and assuaging worries about real estate firms' ability to book sales while legal muddles over their land banks go through the courts.
Telecom stocks will be in focus as Telecom Egypt reports third-quarter results on Nov. 11.
More clarity on a plan to merge most of Orascom Telecom with Russian operator Vimpelcom could give new impetus to the Egyptian market.
The deal still looks uncertain as Algeria pushes ahead with a plan to buy Orascom's lucrative unit Djezzy. Algeria has demanded hundreds of millions of dollars from Orascom in back-taxes and penalties.
(Additional reporting by Dina Zayed in Cairo; Editing by Lin Noueihed)