Sources close to the deal said an announcement could be made as early as Monday, but analysts say the plan may yet crumble due to uncertainty over whether Orascom's Algerian unit Djezzy, its biggest source of income, would be included.

"OT stock has been under so much pressure and people are finally building up confidence (of a deal) — their GDRs (global depositary receipts) are trading higher," said Omar Darwish of CIBC Brokerage.

OT shares were suspended on Monday, pending clarification from the company on the deal as speculation lifted the index to its highest close since May 13.

Vimpelcom was set to unveil the deal to buy control of OT and Italy's Wind, sources said on Monday, a move that could create the world's fifth-largest mobile operator.

OT's Egyptian joint venture Mobinil rose 4.3 percent, helping lift the index 1.5 percent, and OT GDRs were trading 7.3 percent higher at 1320 GMT.

The Egypt index advanced 1.5 percent to 6,837 points.

Most Gulf bourses were unable to sustain Sunday's gains as sluggish trading volumes indicated a sideways trend that analysts said could continue through the week, ahead of third-quarter earnings and profit-taking from the recent rally.

In Dubai, shares in courier company Aramex which have surged this year, fell 1.8 percent after jumping 3.2 percent on Sunday. The stock is 59 percent up in 2010, but traders say it may be hit by some profit-taking after the rally.

"The outlook on Aramex is positive, it seems to just be cooling down," says Musa Haddad, head of MENA equity desk at National Bank of Abu Dhabi.

Dubai's index retreated 0.5 percent to 1,687 points.

The Abu Dhabi index fell 0.4 percent to 2,664 points.

Kuwaiti telecoms firm Zain was in focus again, declining 1.5 percent on continuing speculation about a deal with Emirates Telecommunications Corp. (Etisalat).

In an ad on Friday, National Investments Co. (NIC) — owned by Zain shareholder Kharafi Group — mistakenly called upon small Zain investors registered until Oct. 29, instead of Sept. 29, to join the deal.

NIC on Sunday published a new ad in local papers with the correct date.

"There is no motivation to pick up Zain because there is no way you can enter the deal," said one Kuwait-based trader.

Kuwait's index fell 0.6 percent to 6,947 points.

"The 7,000-mark is where we see resistance at the moment. The move from now until the end of the year, the market in this period - excluding Zain - should trade flat.

Oil eased from a two-month high as investors locked in profits after a recent rally, but markets remained cautious about the pace of global economic recovery and speculation of further monetary policy easing.

Markets in Saudi Arabia, and Qatar also fell on Monday, but Oman's index gained 0.3 percent to 6,520 points and Bahrain's benchmark ended 0.5 percent higher at 1,456 points.

The Tadawul All-Share index (TASI) declined 0.39 percent to 6,395.49 points.

The sector activity for the day was mostly negative with 5 out of 15 sectors closing with gains ranging from 0.06 percent by the Real Estate Development sector to 0.60 percent by the Industrial Investment sector. On the other hand losing sectors ranged from 0.08 percent losses by the Retail sector to 0.79 percent loss by the Multi-Investment sector. The overall market breadth for the day was negative with 40 advancers against 77 decliners giving it an AD ratio of 0.52, the Financial Transaction House (FTH) said in its daily market commentary.

The liquidity for the day reached SR2.04 billion.
 
— With input from agencies