* Gulf still seen as partially immune to global volatility
* Q3 earnings likely to be positive
* But low turnover would probably halt any extended rally
* Qatar banks still attracting interest
* Egypt hit by political uncertainty
By Nadia Saleem and Yasmine Saleh
DUBAI/CAIRO, Sept 28 (Reuters) - Middle East stock markets were hit early this week by a fall in oil prices and concern about a slump in the global economy, but many investors continue to think the Gulf region will escape the worst of the slowdown, limiting downside for markets.
"If between now and Q4, it becomes clear that the global economy is slowing down and problems in Europe and the U.S. are not resolved, chances are that prices will continue to see downward pressure," said Haissam Arabi, chief executive and fund manager at Gulfmena Investments in Dubai. "Ultimately demand for oil will slow down and prices will catch up."
For now, however, many funds believe governments' fiscal spending programmes in the Gulf, and the fact that valuations are already quite low, will prevent regional equities from falling as much as other global markets in the event of a further slide.
Companies will start announcing third-quarter earnings results in about two weeks, and funds positioning for this might give stocks a minor boost, although thin turnover is likely to pevent any extended rally.
"I have a feeling that we are still going to see a positive continuation in Q3 numbers as we had in Q2," said Arabi. "The idea of a global growth slowdown is exaggerated -- China still has domestic growth."
Tarek Lotfy, Arqaam Capital's head of equities for the Middle East and North Africa in Dubai, said: "Banks in Qatar are generally strong -- announcements like increasing salaries in the public sector will have a positive impact on banks."
"The sector has a strong macro driver as banks are benefiting from the activity in infrastructure. We are seeing some rotation in some names but are generally going strong."
Qatar National Bank is up about 7 percent so far this year, and stayed almost flat in the past week despite the global volatility.
Valuations have convinced some long-term investors to hang on to many stocks in the region regardless of short-term swings.
"We're still overweight in petrochemicals -- valuations are still great in Saudi. I've never seen SABIC trade this ridiculously low, while it is posting a record growth rate," Arabi said.
Saudi Basic Industries Corp (SABIC), the world's biggest petrochemical firm by market value, posted a 61 percent rise in second-quarter net profit due to increases in output and prices, beating analysts' forecasts.
But its stock is down 12 percent on the year, and its trailing price/earnings ratio is 10.3, compared to levels near 20 during more normal times.
"We are opting to hold on to these positions with a long-term conviction in place that markets will adjust to reflect true fundamentals. It all depends on the global macro situation," Arabi said.
Egypt's military rulers, who came to power after the uprising that toppled President Hosni Mubarak in February, announced on Tuesday that parliamentary elections would start on Nov. 28, launching the process of handing back power to civilian rule.
Egypt's benchmark stock index has dropped nearly 5 percent in the past week, weighed down by political uncertainty and a slide in Orascom Construction , which hit its lowest level since March. Orascom was apparently sold because it is a liquid blue chip, not for any fundamental reason; Deutsche Bank raised its rating of the stock to "buy" from "hold" and lifted its price target to 270 Egyptian pounds from 250, compared to a price of 213 late on Wednesday.
However, some funds believe the approach of the elections could boost Egypt's market as it becomes clear the transition to civilian government, which will be able to focus more on economic policies and reforms, will go ahead soon.
"We were expecting disturbance and uncertainty. But now we see hope and a road map after the military set a date for a parliamentary vote," said Mohamed Seddiek, head of research in Prime.
"The main thing for foreign investors and financial institutions is that there will be a parliament as this means that the transition process is moving on smoothly. The setting of elections date is good news."
An unresolved dispute over the election laws may open the door for further tension between political groups and the military. But Seddiek said that for most investors, how the dispute would eventually be resolved would be irrelevant. The important thing, he said, is that "everyone now knows there will be elections and a start of a new era." (Editing by Andrew Torchia)