Arabtec dropped 2.5 percent, and the company's Chief Executive Riad Kamal said his suspension from trading in UAE markets was due to his oversight in selling shares prior to the announcement of projects.

"Obviously we will see some short-term impact, as there is no transparency about the issue at this point," said Robert McKinnon, ASAS Capital chief investment officer.

"We still don't know if this will have any impact on Arabtec. I don't think it's a major issue as, in that case, there would have been a significant penalty."

Dubai's index closed 0.7 percent lower at 1,648 points. It was the worst performing Gulf Arab benchmark in 2010, dropping 9.6 percent, with volumes falling to a six-year low in 2010.

"Dubai saw some selling pressure as global markets were down but the Arabtec news added to the decline," said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

Trading volumes in the UAE markets are still low, making recovery difficult for the bourses, he said.

Heavyweight Emaar Properties fell 1.1 percent and Union Properties slipped 2.1 percent.

Abu Dhabi's index advanced 0.3 percent to 2,757 points.

In Kuwait, banking stocks led a rally, helping the index close at a near eight-month high.

Commercial Bank of Kuwait gained 2.2 percent, Kuwait Finance House added 1.6 percent.

"Banks are doing well as it's the earnings seasons and there is a lot of dividend speculation," said a Kuwaiti trader who did not want to be named.

"Local investors have stepped in and are backing banks, which is a good sign."

The index ended up 0.4 percent at 6,999 points — its highest close since Nov 8.

Egypt's benchmark also surged to a fresh eight-month high, led by Mobinil after the company said it was paying a higher-than-expected dividend for the first nine months of 2010.

The index advanced 0.1 percent to 7,210 points, as mobile operator Mobinil jumped 3.9 percent.

"It's a very big dividend. Nobody expected it," said Hisham Metwalli of Arab Finance Brokerage.

Orascom Telecom gained 0.5 percent after it announced it has completed the sale of its 50 percent stake in its Tunisian subsidiary to Qatar's Qtel.

Real estate shares fell, with Palm Hills losing 0.8 percent and Egyptian Resorts falling 1.9 percent.

Egypt's Cabinet on Tuesday approved the outlines of a draft law that would create a body to handle the distribution of all state land.

The Qatari index climbed 0.3 percent to 8,998 points.

In Saudi Arabia, the Tadawul All-Share Index (TASI) fell 0.05 percent to 6,696.55 points. The sector activity for the day was mostly negative with 9 out 15 closing with loses ranging from 0.11 percent by the Cement sector to 0.97 percent by the Media and Publishing sector. On the other hand the gaining sectors ranged from 0.26 percent by the Hotel & Tourism and the Agriculture & Food Industries sectors to 1.40 percent by the Transport sector. The overall market breadth for the day was negative with 43 advancers against 69 decliners giving it an AD ratio of 0.62, the Financial Transaction House (FTH) said in its daily market commentary.

The Saudi stock market turnover reached SR3.23 billion on Wednesday.

The Oman index climbed 0.4 percent to 6,897 points. The Bahraini measure inched up 0.03 percent to 1,424 points.
 
— With input from agencies