Middle East markets were muted, with investors reluctant to open new positions as third-earnings season nears.

OT fell 2.8 percent, its biggest drop since June 22 which took it to its lowest finish since mid-August. After trading hours, Al Arabiya TV quoted unnamed Algerian government sources as denying any new tax demands on Djezzy.

The operator has been embroiled in a long-running dispute with Algeria over back-tax claims of more than $600 million, blocking OT's sale of Djezzy to South Africa's MTN.

OT's Chairman Naguib Sawiris has also been in talks to merge his holding company Weather Investments with telecoms group Vimpelcom.

"People are bored of talk about deals and taxes while nothing happens," said Hashem Ghoneim, vice chairman of Pyramids Capital in Cairo.

The Egypt index fell 0.9 percent to 6,679 points.

Emaar Properties and Dubai Financial Market fell 1.8 and 2.8 percent respectively as Dubai's index eased from Sunday's 19-week high. The Dubai index fell 1 percent to 1,699 points.

"The market is taking a breather, which is normal and investors are waiting for Q3 results," said Rami Sidani, Schroders Middle East head of investment.

Dubai Islamic Bank rose 0.9 percent after taking a majority stake in mortgage provider Tamweel. The latter's shares have been suspended since 2008 along with rival Amlak, pending a mooted merger.

"The deal will take some liquidity from DIB's balance sheet and might also lead to some provisioning going forward, now it will have control of Tamweel," said Sidani. "So I'm puzzled to see the stock react positively...but we've been waiting a long time for some developments on Tamweel and Amlak."

The move will aid Dubai's real estate sector, Sidani added. Dubai house prices have fallen some 60 percent from 2008 peaks.

The Abu Dhabi index climbed 0.3 percent to 2,664 points on Monday.

In Saudi Arabia, the Tadawul All-Share Index (TASI) slipped 0.03 percent to 6,451.44 points. The sector activity for the day was mixed with 7 out of 15 sectors closing with gains ranging from 0.05 percent by the Transport sector, the Cement sector and the Petrochemical Industries to 1.32 percent by the Energy & Utilities sector. On the other hand losing sectors ranged from 0.09 percent losses by the Multi-Investment sector to 0.88 percent loss by the Agriculture & Food Industries sector. The overall market breadth for the day was negative with 55 advancers against 66 decliners giving it an AD ratio of 0.83, the Financial Transaction House (FTH) said in its daily market commentary.

Qatar's index fell 0.7 percent to 7,631 points, its biggest drop since Aug. 25 to ease from Sunday's 23-week high.

"It's healthy for the market - it should have gone down last week," said Hani Girgis, Dlala brokerage assistant chief dealer.

Local institutions have been net sellers in Qatar in September, Girgis said, while the market gave a reversal sign at 7,200 points, although exuberance from retail investors means this was ignored.

"The market term target is still 7,800, but the market should decline to then rebound," added Girgis.

The Kuwaiti index rose 0.1 percent to 6,832 points.
 
— With input from agencies