UPDATE 3-Kuwait halts bourse trade, creates bailout fund

(repeats to additional subscribers) (Adds appeal, rescue fund detail)

By Rania El Gamal

KUWAIT Nov 13 (Reuters) - Kuwait halted trading on its stock exchange on Thursday due to a court order won by investors, and the government launched a bailout fund for investment firms as shockwaves from the financial crisis spread.

The shutdown follows protests by investors seeking emergency measures to protect their holdings after the bourse .KWSE, the second largest among Gulf Arab states, fell 31 percent this year.

"Our demand is to stop trading. This is a crisis. Investors have to be compensated," Abdullah al-Ajmi, one of the investors who filed the suit, told Reuters.

Around 60 investors stood in front of the exchange celebrating the suspension, which underlines how far the crisis has hit the region despite the protection of its energy wealth.

"It's all selling, all selling. It's better that they stop trading until the bourse improves," said another investor who declined to be named.

Trading could resume as soon as Nov. 16, the country's commerce minister said, if a planned appeal against a court ruling to suspend dealings was successful.

RESCUE FUND

Separately, the Kuwaiti government plans to buy up assets at a discount from investment firms hit by the global financial crisis, the central bank said.

Local media have reported billions in losses due to the crisis, which has forced the central bank to rescue the country's fourth largest lender, Gulf Bank (GBKK.KW).

Kuwait has already slashed interest rates, guaranteed all bank deposits, and allowed the Kuwait Investment Authority, its sovereign wealth fund, to pump cash into the bourse.

The new plan would purchase stocks, land or real estate from investment firms at a discount and then issue them a promissory note enabling them to borrow from banks and then repurchase the assets at the same price within five years, a government source told Reuters.

The arrangement will allow investment firms to avoid selling assets into distressed markets at depressed prices, thus deepening their predicament, the source said, adding that assets purchased by the new fund could be local or foreign assets.

Investment firms have similar activities to those of investment banks in Kuwait. They are asset managers and underwriters. They manage mutual funds and portfolios on behalf of their clients and they can also establish other firms.

In contrast, Bahrain will not intervene to boost the local bourse by buying stocks through its sovereign wealth fund and will not buy debts off bank balance sheets, the finance minister said in remarks published on Thursday.

"Bahrain depends on an open market approach so the stock exchange is available for investors to buy and sell shares without interference from relevant authorities," Sheikh Ahmed bin Mohammed al-Khalifa was quoted as saying in al-Watan newspaper. (Additional reporting by Ola Galal; Writing by Thomas Atkins; Editing by Patrick Graham)