REFILE-WRAPUP 2-Kuwait saves bank, Saudi extends credit

(Corrects to remove extraneous word in fourth paragraph)

(Adds new central bank move, Kuwait MP, analysts)

By Ulf Laessing

KUWAIT, Oct 26 (Reuters) - Kuwait moved to prop up one of its banks and Saudi Arabia extended $2.7 billion in credit to needy citizens on Sunday as the global financial crisis spread to the Gulf Arab region, sending stocks into a tailspin.

The Kuwait central bank was forced to step in to support Gulf Bank (GBKK.KW), which was hit by losses from trading in currency derivatives after the dollar rose, prompting the government to announce it would guarantee local bank deposits.

Saudi Arabia unveiled plans to deposit 10 billion riyals ($2.67 billion) into the Saudi Credit Bank, which was established to extend interest-free loans to low-income citizens to help them overcome financial difficulties.

The actions spooked investors.

Gulf markets tumbled to multi-month lows on Sunday. Qatar .QSI and Oman .MSI indices fell more than 8 percent, while Dubai .DFMGI sank 4.74 percent and Saudi Arabia's index TASI slipped 3.77 percent after an 8.7 percent slide on Saturday.

The losses followed those on global markets on Friday as investors dumped risky assets.

The latest moves by Kuwait and Saudi Arabia come after an emergency meeting of Gulf finance ministers and central bankers in the Saudi capital on Saturday, which was aimed at better coordinating the region's response to the global downturn.

Gulf Arab nations have so far adopted separate policy responses to the crisis, which has frozen interbank lending and panicked investors. Some Gulf states have guaranteed deposits, eased lending restrictions and invested in ailing stocks.

KUWAITI HEADACHE

The Kuwaiti government also set up a special task force on Sunday headed by the central bank governor to deal with the impact of the financial crisis.

"The market is looking for confidence-building measures. They shouldn't take actions that damage another country's deposit base," said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate.

"As they face this global uncertainty, the central banks need to have a uniform position."