* Egypt lower economic activity already priced in
* Cairo stocks seen rallying, Gulf mkts unfazed
By Matt Smith
DUBAI, March 23 (Reuters) - Egyptian share prices will soon rebound, with fear the primary cause of Cairo's sell-off rather than a marked change in the country's economy, although some listings will underperform due to their links to the old regime, say market analysts.
Cairo's stock exchange reopened on Wednesday following an eight-week suspension, the first day's trading since popular protests ended former president Hosni Mubarak's 30-year rule.
This unrest ravaged the country's tourist industry and briefly paralysed many businesses, including banks, leaving the Arab world's most populous nation on the brink of recession, but with some stocks down more than 30 percent this year, this contraction should already be priced in.
"In the short-term, Egypt is getting back to normal pretty quickly and the market will feed off that," said Akram Annous, MENA strategist at Al Mal Capital in Dubai.
"Markets only really plunge when there's a bank or economic crisis usually tied to some sort of over-investment or excessive leverage cycle and we're not seeing any of those things in Egypt. It has been nothing more than headlines and fear driving the market lower and so the trend can reverse pretty quickly."
Cairo's benchmark index fell 8.9 percent to 5,143 points on Wednesday, taking its 2011 declines to 28 percent, with 23 out of 30 stocks plunging more than 9 percent.
"I wouldn't be selling Egypt now," said Al Mal's Annous. "I think the buyers will wait one or maybe two more sessions. I might not be saying buy Egypt stocks long-term, but I would be willing to get long here for a short-term trade."
Local traders expect Cairo's index to extend losses on Thursday, before finding support at 4,800 to 5,000 points.
Trading in some stocks is suspended until their ownership and financial positions are clarified. These include Ezz Steel and National Societe Generale Bank (NSGB).
Ezz Steel's chairman, Ahmed Ezz, who was a top official in Mubarak's party, has been detained since Feb. 17.
Orascom Telecom (OT) was the only stock on Cairo's top index to advance on Wednesday, rising 5 percent. Russian operator Vimplecom is due to pay $6 billion for control of Orascom and Italy's Wind.
Analysts said the deal would boost OT's financial position amid a dispute with Algeria over its Djezzy unit.
"Things are getting better for OT, which was previously underperforming the market," said Mohamed Kotb, director of asset management at Naeem Brokerage.
Other Egyptian telecoms shares are seen outperforming.
"Telecom is a defensive sector with predictable cash flows that won't be impacted in the near-term by any change in government," added Al Mal's Annous.
Maridive and Oil Services is also tipped to prosper, with 90 percent of its operations outside Egypt.
GULF MARKETS
Volumes in Gulf Arab share markets fell on Wednesday, with investors eyeing Egypt's opening, but regional bourses were otherwise little affected by Cairo's drop.
Instead, some traders are betting new state spending plans in the region will translate into improved corporate profits.
"Government spending has increased because of the troubles, whether it's on infrastructure, real estate or benefits," said Mohammed Yasin, CAPM Investment chief investment officer.
"The extra surpluses generated through higher oil prices this year will more than cover these extra expenses. Liquidity for SMEs (small to medium enterprises) will increase and that will trickle down to the stock market in the next few months."
Last Friday Saudi Arabia announced a further $93 billion in social spending. Measures to raise unemployment benefits, add jobs and raise the minimum wage were accompanied by the creation of 60,000 security jobs and more money for the religious police.
Meanwhile Saudi Basic Industies Corp (SABIC), the Arab world's largest listed company, will pay employees a bonus of two months' salary and other firms made similar gestures.
"All these mean there's extra cash in the system, which should translate into bigger bank profits," said a Riyadh-based trader who asked not to be identified.
Yet some fund managers remain sceptical.
"The political issues won't go away, so upside in the medium term is probably limited," said Robert McKinnon, ASAS Capital's chief investment officer.
"Some will even question the government's intent to actually spend the full amount. I think it will be watered down over time.
"Much of the stimulus is going to the people that are happy and have jobs, or own companies and land. I don't see any intent at actual reform. So it seems to me this is a PR stunt." (Additional reporting by Sherine El Madany in Cairo; Editing by Greg Mahlich)