* Cairo drops for third day, trimming 2014 gains to 24 pct
* Fund managers at state-linked funds sell before fiscal year-end
* Beltone and target EFG Hermes fall
* Dubai rebounds from 11-week low but further declines possible
* Qatar at two-month low
By Matt Smith
DUBAI, June 17 Egypt's stock index fell for a third straight session on Tuesday as worries over the crisis in Iraq spurred Cairo investors to lock in some of this year's gains. But Gulf markets generally stabilised after losses earlier this week.
The Cairo benchmark dropped 1.5 percent to 8,397 points, taking its losses to 4 percent since June 12's two-week high. The measure is still up 23.8 percent in 2014.
"We're mainly being affected by the regional equity sell-off that's due to the escalating violence in Iraq," said Mohamed Radwan, head of equities at Pharos Securities in Cairo. "There's no positive macro political or economic news, which is depriving the market of any more gains. It's taking a breather."
U.S. President Barack Obama considered options for military action to support Iraq's besieged government on Monday but made no decision on the U.S. response to a Sunni militant onslaught that has threatened to tear the country apart.
Although the conflict may have no direct impact on Egypt, higher oil prices could worsen its balance of payments and hit state finances through the fuel subsidy system.
Last week, the index tested and failed to break chart resistance on May's multi-year peak of 8,823 points. Its sharp pull-back suggests that level is a strong barrier.
Selling was across all sectors on Tuesday. Telecom Egypt dropped 2.2 percent, property developer Talaat Moustafa slid 1.8 percent and Commercial International Bank fell 1.5 percent.
The government's financial year ends on June 30, which has prompted some fund managers at state-linked institutions to cut equity positions and lock in this year's gains, said Radwan.
Also, Egypt's regulator has yet to approve Beltone Financial's bid for 20 percent of investment bank EFG Hermes, causing some jitters among investors.
Beltone made a $257 million offer together with billionaire Naguib Sawiris for the EFG stake on June 5, but a few days later the market regulator said the offer did not yet meet regulatory requirements.
Shares in EFG fell 1.1 percent on Tuesday. Beltone mounted a late rally to reverse early-session losses and end 3.3 percent higher, although only 7,536 shares traded.
Meanwhile, Gulf markets were mixed following a widespread sell-off earlier this week that was partly due to unease over Iraq, even though the region's oil-exporting economies are unlikely to be hurt and could even benefit from higher crude prices.
In Dubai, the benchmark rose 0.6 percent to 4,495 points in another volatile session. The measure eased away from Monday's 11-week low to stand up 33 percent in 2014, as investors switched between booking gains from a near two-year rally and buying back stocks at lower prices.
"Dubai triggered a downtrend on a technical basis, which would indicate there's probably more downside to come after breaking below the lows of about a month ago," said Bruce Powers, technical strategist and president at WideVision in Dubai.
"It's a long overdue correction and in the bigger picture it's healthy for the market, but it's happening just before the summer so it could go on for a few months. Within that there will be plenty of short-term trading opportunities."
Property-related stocks, which are among the most liquid on the bourse and tend to exaggerate broader market moves, recouped some of their recent losses.
Builder Arabtec and contractor Drake & Scull climbed 4.2 and 7.3 percent respectively. Arabtec, down 45 percent from May's peak of 7.74 dirhams, has been plagued by concern about the decision by major shareholder Aabar Investments to cut its stake earlier this month.
In late trade on Monday, Arabtec's chief executive Hasan Ismaik told Al Arabiya television that recent rumours of a conflict between the managements of Arabtec and Aabar were untrue. He said the stock's plunge did not reflect its fair value.
Qatar's measure edged down 0.3 percent to a two-month low.
* The index fell 1.5 percent to 8,397 points.
* The index rose 0.6 percent to 4,495 points.
* The index slid 0.7 percent to 4,749 points.
* The index fell 0.3 percent to 12,520 points.
* The index rose 0.5 percent to 9,575 points.
* The index slipped 0.4 percent to 7,079 points.
* The index fell 0.4 percent to 1,445 points.
* The index fell 0.4 percent to 6,888 points. (Editing by Andrew Torchia)