* Egypt rally falters in broad-based sell-off
* But steady politics should support longer-term gains
* Kuwait Food Co falls after says no takeover talks with Savola
* Qatar hits 11-week high; heavyweights lead after MSCI decision
* UAE markets up but trade is thin
By Matt Smith
DUBAI, Aug 18 Egypt's stock benchmark suffered its largest decline in eight weeks on Monday as investors booked gains after the previous day's six-year peak, while most Gulf markets rose in thin trade.
Cairo's measure fell 1.4 percent in a broad sell-off. Trading volume was up by more than a third from a day earlier, which may indicate further selling is likely - the benchmark rose 17 percent from June 29 to Aug. 17, so investors may opt to take more profits this week.
Commercial International Bank and EFG Hermes were among the most notable losers, dropping 3.7 and 5.9 percent respectively.
"Egypt has been grinding higher for the past months and there's a direct correlation with the political situation, which has been slowly but surely consolidating," said Amer Khan, senior executive officer at Shuaa Asset Management in Dubai.
"Given the market's gains, it's natural to see investors booking some profits." Khan expects Egypt's tentative political stability will allow the market to reach new highs in the longer term.
However, Ezz Steel provided a reminder of the continuing difficulties with which many Egyptian firms still contend. Its shares fell 1.1 percent, trimming their 2014 gains to 11.3 percent, after it swung to a first-quarter loss.
The firm made a net loss of 19 million Egyptian pounds ($2.7 million) in the three months to March 31. That compares with a profit of 202 million pounds a year earlier.
The slump was due to disruptions to power supplies which hurt steel production, said Paul Chekaiban, Ezz Steel chairman and managing director.
"We expect the operational efficiency of our business model to partially offset the negative impact of the detrimental general conditions in which our industry will operate in Egypt during the remainder of 2014," he added.
Shares in Kuwait Food Co (Americana) fell 0.6 percent after the company said it had no knowledge of any talks with Saudi Arabia's Savola Group over a possible acquisition of Americana.
The stock had been suspended since Aug. 13, when it rose 2.6 percent to a record high following a statement from Savola saying the Saudi firm was preliminary talks to buy Americana.
Americana is part of the Kharafi family business empire. National Investment Co - another Kharafi company - also declined, falling 3.7 percent. Savola shares lost 2.5 percent in Riyadh; analysts think an Americana acquisition might be a good fit for the company.
Qatar's measure rose 1.7 percent to an 11-week high. Most blue chip stocks rallied, although index volumes slumped to a week-low.
Qatar National Bank and Industries Qatar - the largest listed companies by market value - climbed 2.9 and 2.4 percent respectively, while Qatar Islamic Bank rose 4.1 percent.
MSCI will raise the weighting of these three stocks on its emerging market index at the end of this month and investors may buy this trio until then, said Shuaa's Khan.
Dubai's index rose 0.7 percent, its biggest gain in a week.
Nearly 116 million shares traded, which was more than double Sunday's total but still low compared to recent market norms; nine of the 12 sessions this year in which fewer than 200 million shares traded have been in August.
"A lot of fund managers and retail investors are still away and volumes probably won't return until September," added Khan. "Looking at the volumes, there's not much you can infer to say there's a clear trend."
Emaar Properties and contractor Drake & Scull each climbed 1.5 percent. Property-related stocks tend to lead market moves in the UAE.
Abu Dhabi also rose, adding 0.7 percent. Aldar Properties was the most active stock, rising 2.2 percent.
Saudi Arabia edged up 0.1 percent, hitting a new six-and-a-half year high.
* The index fell 1.4 percent to 9,316 points.
* The index edged up 0.02 percent to 7,267 points.
* The index rose 1.7 percent to 13,645 points.
* The index climbed 0.7 percent to 5,052 points.
* The index rose 0.7 percent to 4,826 points.
* The index rose 0.1 percent to 10,650 points.
* The index slipped 0.05 percent to 7,332 points.
* The index fell 0.3 percent to 1,472 points. (Editing by Andrew Torchia)