DFM reported a 43 percent drop in full-year profit on Tuesday, blaming lower trading commissions for the slump, with investors deserting Dubai's index as the emirate's debt woes and housing crash sent shares tumbling.

Stocks worth less than 10 dirhams will now trade to three decimal places instead of two at present. For securities valued above 10 dirhams, the minimum decimal fraction will be reduced to 0.01 dirham from 0.05 dirham, DFM said. The changes take effect March 11. 

"Day traders are likely to welcome this and it should help increase market volumes, but it will also encourage traders to churn their accounts," said Mohammed Yasin, Shuaa Securities chief executive. "Three digits should lessen volatility. It should affect stocks below 5 dirhams more - above that and the extra digit will not make much difference."

Dubai's market is down 75 percent since hitting a 21-month peak in January 2008, with about a quarter of its stocks ending Thursday below 1 dirham. 

In the current system of two decimal places, these stocks move a minimum 1 percent, while day traders' favorites such as Union Properties and Deyaar are valued at less than 0.5 dirhams, so move a minimum 2 percent up or down, increasing volatility on an already troubled market. 

This polarization of prices is another deterrent for traders, with Thursday's volumes slumping to a three-month low and barely a sixth of the 18-month daily average.

"Volumes are very low and a lot of money has shifted out of the UAE and into more promising regional markets like Saudi Arabia, Kuwait and Egypt which also have more depth," said Musa Haddad, head of MENA equity desk at National Bank of Abu Dhabi.

Dubai's new system will benefit large institutions that use automated algorithmic trading systems, Shuaa's Yasin added, but will do little to encourage long-term investors to return.

Sister exchange Nasdaq Dubai already lists stock prices to three digits. The DFM's move is seen as a further step toward the harmonization of the two.

In December, DFM agreed to buy Nasdaq Dubai for $121 million, with the bourses already sharing a majority stakeholder in state-controlled Borse Dubai.

In February, Nasdaq Dubai said it would change its opening hours to that of the DFM, pending regulatory approval, in another attempt to boost trading.

Meanwhile, Dubai's index rose for the first session in three on Thursday, but volumes fell to a three-month low, with investors switching to other regional markets amid ongoing uncertainty over the emirate's debt position. 

Qatar slipped to a fresh three-week low and Abu Dhabi and Oman also fell, but Kuwait, Bahrain and Egypt edged higher.

Dubai climbed 0.7 percent to 1,585 points, with bellwether Emaar Properties being the main support, rising 1.7 percent. Index volumes were barely a sixth of the 18-month daily average. 

"You can see from the recent volumes that nobody is building long-term positions - until something major comes out about Dubai's debts, trading will be short-term," said Chamel Fahmy, Beltone Financial's regional senior sales trader.

Government-owned Dubai World is expected to unveil a multi-billion dollar restructuring plan in March.

Abu Dhabi's index fell 0.1 percent to 2,727 points for the first session in five as property stocks declined. Aldar Properties fell 2.3 percent and Sorouh Real Estate lost 1.9 percent.

"People would rather be in other sectors than real estate - banks have government support and are more solid," said Musa Haddad, head of MENA equity desk at National Bank of Abu Dhabi. 

"Volumes are very low and a lot of money has shifted out of the UAE and into more promising regional markets like Saudi Arabia, Kuwait and Egypt which also have more depth," he added.

Indices in Abu Dhabi and Dubai are both down year-to-date, while Egypt is up 9.3 percent and Saudi Arabia and Kuwait have each gained more than 5 percent.  

Kuwait's Zain climbed 1.6 percent. The stock has risen 20 percent since the telecom operator said it was in exclusive talks to sell some of its African assets to India's Bharti Telecom in a $9 billion deal.

"People are slowly gaining confidence in the banking sector and increasingly believe banks will not have to take further provisions in Q1, especially if Zain's deal goes through," said a Kuwait-based analyst who asked not to be identified.

Many investors had used Zain shares as collateral with banks to borrow funds to reinvest in the market, the analyst said. Much of the borrowing was done around when shares peaked at 1.6 dinars in September on expectations of a potential stake sale. 

As the deal floundered, Zain's shares slumped, losing almost half their value and leaving lenders' reeling, but with the market now convinced Zain's asset sale will go through and the stock back to up to 1.3 dinars, banks' balance sheets are looking more favorable, he said.

Doha's index fell 0.8 percent to 6,729 points - its lowest close since Feb. 7 as Industries Qatar slumped to a 28-week intraday low, extending losses since earnings missed forecasts.