Kuwait's index dropped 1.7 percent to 6,321 points, after falling by a similar margin on Thursday, to its lowest close for more than five years.

"Economists recently declared that they fear that despite of the prevailing optimism that the economic crisis might end in the near future, the possibilities that it could worsen also remains as the international economies still did not give a significant sign of a recovery," said Global Investment House in a research note.

All bluechips contributed to Kuwait's decline, including telecom heavyweight Zain, which fell 3.6 percent.

In addition, investors are also pessimistic about second-quarter results, which was seen as a potential catalyst for buying activity.

"People are not very optimistic about second-quarter results, especially because many companies are linked to the market's performance," said a Kuwait-based trader.

"Given the market's performance this quarter, this is likely to be reflected in the second-quarter results of those companies exposed, which in Kuwait is a big chunk," he said.

Most other markets in the Middle East traded flat to lower, with volumes subdued and little or no market direction.

"It's the historical summer thing: Traders are more pessimistic, there is more risk aversion than risk takers," said Mohamed Khaled, risk manager at Prime Securities.

Saudi stocks extended their losses, ending lower for a sixth consecutive day, as oil prices continued to weigh on investors' sentiment.

The Tadawul All-Share Index (TASI) closed down 0.52 percent to 6,002.61 points. The sector activity for the day remained negative with 11 out of 15 sectors closing with losses ranging from 0.02 percent by the Insurance sector to 1.01 percent by the Energy and Utilities sector. On the other hand the gaining sectors for the day ranged from 0.20 percent by the Building and Construction to 0.89 percent by the Retail sector. The overall market breadth for the day was also negative with only 46 advancers against 75 decliners giving it an AD ratio of 0.61, the Financial Transaction House (FTH) said in its daily market commentary.

Heavyweights Saudi Basic Industries Corp. (SABIC) and Samba Financial Group fell 1.2 percent and 2.2 percent respectively.

In Dubai, telecoms firm du fell 3 percent. Du will gain access to the network of rival and market leader Etisalat, creating a new wave of competition in the country, a local newspaper reported on Friday.

The Dubai index fell 0.1 percent to 1,468 points.

Qatar stocks retreated for a sixth consecutive session, hitting their lowest level since June 7. The measure fell 1.2 percent to 6,767 points.

In Egypt, shares in Egyptian brokerage Pioneers Holding fell 7.7 percent after its planned merger with investment bank Beltone Financial fell through.

Egypt's index slumped 2.3 percent to 5,896 points.
 
- With input from agencies