Shares of three of Abu Dhabi's top lenders pulled back on Sunday after the banks denied they were in merger talks, while Saudi shares were hit by profit taking. Egypt's stock market gained as foreign funds continued to accumulate blue chips.
Abu Dhabi's index dropped 1.7 percent as Union National Bank retreated 5.2 percent and Abu Dhabi Commercial Bank lost 2.7 percent after both lenders issued separate statements on Sunday denying last week's Bloomberg report that the two lenders were involved in merger talks.
Similarly Abu Dhabi Islamic Bank pulled back 0.8 percent after the lender said in a bourse statement that it has no merger plans. Bloomberg reported on Wednesday that the bank is in talks to merge with Alhilal Bank.
Shares in the three lenders were suspended earlier on Sunday and trading resumed after their statements.
"The consolidation genie is out of the bottle with the Abu Dhabi government having already announced the merger of two banks and two sovereign funds. This is a sound strategy when trying to cope with a prolonged economic slowdown, so it is unsurprising investors are trying to second guess which companies may be next in line," said Akber Khan, director of asset management at Qatar's Alrayan Investment.
Rumours have been circulating in recent months that as part of an efficiency drive more banking tie-ups might happen in the wake of Abu Dhabi's two largest banking heavyweights, National Bank of Abu Dhabi and First Gulf Bank pushing ahead with their own merger, expected to be completed in the first quarter of 2017.
On Sunday NBAD closed down 1.0 percent and FGB lost 2.9 percent.
Dubai's Shuaa Capital jumped 7.5 percent to 1.58 dirhams ($0.43) after the investment firm announced that Abu Dhabi Financial Group (ADFG) had carried out a previously announced acquisition of 48.36 percent of the firm from Dubai Banking Group, a subsidiary of Dubai Group, for 0.705 dirham a share.
Although the purchase price was well below the market price, some investors are betting ADFG will develop Shuaa into a much bigger company.
Dubai's index, however, closed down 0.3 percent with the main drag coming from large-cap shares. Emaar Properties fell 0.3 percent and telecom operator Du pulled back 0.8 percent.
Riyadh's main index retreated 0.9 percent to 6,570 points, pulling away from technical resistance on the July peak of 6,703 points. The index is still up 16.3 percent over the last 30 days.
Banking shares, which have been the chief gainers over that period, were some of the worst performers on Sunday as all but two of the 12 listed lenders closed lower. Banque Saudi Fransi
dropped 3.7 percent to 26.10 riyals, it is now trading at par with the mean fair value of analysts polled by Reuters.
"When a market gains about 20 percent in one month some profit taking is a given. Sentiment swung from extreme fear to extreme greed in a short period," said Khan of Alrayan Investment.
Khan added that the rally has been fuelled by institutional investors while Saudi retail investors - which usually make up the majority of trading volumes - have remained sellers.
"As a result, the larger, more liquid names have done very well."
According to exchange data, local mutual funds were aggressive net buyers of Saudi stocks over a one week period to November 17 while retail investors were net sellers.
In Egypt, the blue chip index closed up 0.5 percent, a fresh eight-year high but traded volumes fell by about 30 percent from a record high struck on Thursday.
The index is now up 32.3 percent since the Egyptian pound was floated on November 3 and foreign funds continued to be net buyers of shares on Sunday, bourse data showed.
"Foreign buyers did not relent despite some weakness in the pound," said a Cairo-based broker.
The Egyptian pound was trading at between 17.30 and 17.45 against the dollar after closing at about 16.05 on Saturday.
Orasom Telecom, the most traded share, added 5.9 percent and Arabia Cotton Ginning climbed 6.5 percent.
But real estate investment firm Pioneer Holding Company fell 1.0 percent after the company posted a 34.8 percent drop in third-quarter net profit, with revenue falling about a fifth for the period.