* Four GCC states still committed to monetary union
* UAE withdrawal seen weakening if not killing union plan
* UAE to stick to dollar peg, monetary policy
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By Daliah Merzaban
DUBAI, May 20 (Reuters) - The United Arab Emirates has withdrawn from the Gulf Arab monetary union plan, derailing the long-troubled project and throwing into question the viability and influence of any union that does emerge.
Arab oil exporters in the Gulf region, including the UAE, Saudi Arabia, Kuwait, Qatar and Bahrain, have tried for almost a decade to negotiate a single currency that some policymakers hoped would eventually be freely floated globally.
But a project that would have enabled the world's biggest oil-exporting region to act as a single economic force is now weakened if not rendered dead without the Gulf's second-largest economy, officials and analysts said on Wednesday.
The UAE -- the second of six members of the Gulf Cooperation Council (GCC) to pull out of Gulf monetary union after smaller Oman -- linked its decision to a choice to base a joint central bank in Saudi Arabia, by far the region's largest economy.
"I think it is dead. I don't think it will go ahead now and if it surprisingly does, it will not be worth much," Eckart Woertz, economics programme manager at the Gulf Research Centre, said of the European Union-style project.
"This is like if you imagine France withdrawing from the euro. Britain's (opt-out) was like Oman, a blow but not a nail in the coffin. The UAE is like France."
Britain has negotiated an opt-out of joining the single European currency.
Analysts said the withdrawal marked an outcry against Saudi dominance in Gulf decision-making; the kingdom is almost double the combined size of the three remaining union participants.
Gulf officials said the four other states were still committed to the project, although they also acknowledged that the project had been weakened considerably.
The creation of a single currency among the Gulf's wealthy oil exporters, combined with the increasing importance of the euro and China's yuan, could be a blow to the status of the U.S. dollar as the world's leading currency.
BALANCE OF POWER
Apart from Oman's decision not to join, Kuwait threw the plan into disarray when it decided in 2007 to sever its dinar's peg to the U.S. dollar, contravening an agreement to keep the pegs intact until monetary union.
The UAE Central Bank governor said in a statement on state news agency WAM that the UAE remained committed to its dollar peg, but analysts said the move could ignite fresh speculation over a change in the Gulf's fixed-exchange rates.
"Kuwait and other Gulf Cooperation Council countries are still committed with this agreement and we are all going ahead with what we've agreed on," Kuwaiti Finance Minister Mustapha al-Shamali told Reuters on Wednesday.
A Gulf official, requesting anonymity, added: "Monetary union will be weakened but it is also a loss for the UAE because it is losing a competitive advantage of being part of a bloc."
But analysts said the four-member bloc had a lot to lose without the UAE because its withdrawal had skewed the balance of power of any future union significantly in favour of Saudi Arabia, the world's top oil exporter.
Saudi Arabia has been steadfast in its commitment to its dollar peg although neighbouring Kuwait is unlikely to support re-linking its currency to the dollar, analysts said.
KILLS THE PROJECT?
The UAE withdrawal comes just two weeks after the Gulf state expressed reservations over a decision by heads of state to base their joint central bank in Saudi Arabia.
In the statement on the UAE withdrawal, WAM said it was the first country to ask to host the joint central bank in 2004 and did not host any other GCC body. Saudi Arabia hosts the GCC Secretariat, whose top official is Qatari.
Kuwait had not been vying to host the central bank and Bahrain, a small island kingdom with strong deferential ties to Saudi Arabia, has already ratified the monetary union deal.
"The UAE has all the right ingredients to host the GCC central bank," a UAE official said on Wednesday, linking the withdrawal to the bloc's decision on the location.
The UAE, a federation of seven emirates including Abu Dahbi and Dubai, is regarded as a liberal centre in the Arab world for commerce, tourism and trade.
Many analysts, including from Moody's Investors Service to EFG-Hermes, declared the project dead unless the UAE decides to rejoin, while others said any resulting union would lack clout.
"While those states still in the accord will initially talk about carrying on, a Gulf currency without the region's second-largest economy lacks substance and will be of limited economic significance," said HSBC economist Simon Williams. (Additional reporting by Lin Noueihed, Inal Ersan, Jason Benham, Luke Pachymuthu and Dania Saadi in Dubai; Rania El Gamal in Kuwait; Ulf Laessing in Riyadh; Writing by Daliah Merzaban; Editing by Victoria Main)