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* Newspaper says Sisi to resign as defence minister on Monday
* Heavyweight Industries Qatar tumbles 7.1 percent
* Gulf diplomatic tensions continue to weigh on market
* Dubai hits four-week closing low on profit-taking
* Kuwait's Zain, NBK bought as undervalued blue chips
By Nadia Saleem
DUBAI, March 11 (Reuters) - Egyptian shares rose on Tuesday after an unconfirmed media report suggested defence minister Abdel-Fattah al-Sisi would soon launch his bid for the presidency, while Qatar took a hit as heavyweight Industries Qatar traded ex-dividend.
Egypt's Al Shorouk newspaper reported Sisi would officially announce his resignation from his current post on March 17; it cited an unidentified source close to the armed forces. It said Sedki Sobhi, armed forces chief of staff, would replace Sisi.
"If this happens, it will open the way for Sisi's run for the presidency," said Islam Batrawy, Cairo-based head of regional equity sales at NBK Capital. Sisi is the favourite of many Egyptian investors, who see him as the best guarantor of political stability and economic aid from the Gulf.
"The market however lacks depth from institutional investors, and that won't change until there is clarity on elections and economic visibility," Batrawy added.
He said currency repatriation problems and fears of a further devaluation of the Egyptian pound were still keeping foreign investors away.
Cairo's benchmark index rose 1.7 percent to 8,109 points, just shy of a 66-month peak touched earlier in March.
In Doha, the benchmark index retreated 1.7 percent, ending a three-session gaining streak.
Large-caps lost ground with Industries Qatar the main drag; it tumbled 7.1 percent after passing the date on which shareholders qualified for a 2013 cash dividend of 11 riyals.
Overall sentiment was also weak after Qatar dismissed calls by its Gulf neighbours to change its foreign policy.
The foreign policy of Qatar, which has backed Egypt's Muslim Brotherhood, is "simply non-negotiable", the official Qatari news agency quoted Foreign Minister Khaled al-Attiyah as saying in a speech in Paris.
Last week Saudi Arabia, the United Arab Emirates and Bahrain recalled their ambassadors from Qatar over the issue; Attiyah's remarks may indicate a resolution to the dispute is not near.
Profit-taking picked up pace in the United Arab Emirates. Dubai's measure lost 1.4 percent, trimming its 2014 gains to 21.4 percent and slumping to its lowest closing level in four weeks.
Dubai Islamic Insurance & Reinsurance (Aman) dropped 1.7 percent after credit rating agency Standard & Poor's lowered its rating of the company to 'BB+' from 'BBB-' with a negative outlook. It said a loss posted by Aman at the end of last year had impaired its capital adequacy.
In Kuwait, blue chips helped lift the main index, which gained 0.4 percent as local funds accumulated what they saw as undervalued stocks.
Telecommunications operator Zain rose 4.8 percent, recovering from a five-year low. The stock was hammered in recent weeks after its fourth-quarter earnings missed estimates because of foreign exchange losses, but it said its customer base increased 8 percent. Last week, the firm finalised an $800 million, five-year loan facility from 11 banks.
"Local funds are building inventory in Zain, which has an improving client base, scheduled loans and pays among the highest dividends in Kuwait," said Fouad Darwish, head of brokerage services at Global Investment House.
"The market has not been portraying the fundamental improvement of companies, and prices for stocks like Zain and NBK can be viewed as a bargain."
Shares in heavyweight National Bank of Kuwait gained 1.1 percent.
Kuwait's weighting is set to increase on MSCI's frontier market index at the end of May as the United Arab Emirates and Qatar move up from it to the emerging market index. Darwish said some investors were betting on Kuwaiti blue chips ahead of that increase, which could bring in more foreign funds.
* The index rose 1.7 percent to 8,109 points.
* The index tumbled 1.7 percent to 11,509 points.
* The index fell 1.4 percent to 4,092 points.
* The index dropped 1.0 percent to 4,783 points.
* The index ticked up 0.1 percent to 9,355 points.
* The index gained 0.4 percent to 7,520 points.
* The index sipped 0.2 percent to 7,078 points.
* The index edged up 0.03 percent to 1,387 points.