MIDEAST STOCKS-Saudi shares decline after Iran seizes UK tanker; other markets mixed

DUBAI, July 21 (Reuters) - Saudi Arabian shares declined on Sunday, as Iran’s seizure of a British-flagged tanker raised investor concern about geopolitical risk, while some investors booked profit after the market’s strong run this year.

Britain has denounced Iran’s capture of the oil tanker in the Gulf on Friday as a “hostile act”, rejecting Tehran’s explanation that it seized the vessel because it had been involved in an accident.

“Markets are following the negative global lead as geopolitical risks take centre stage following the UK tanker seizure by Iran,” said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital in Dubai.

Other Gulf markets were mixed, with property stocks weighing on Dubai’s index, but strong earnings by First Abu Dhabi Bank lifting the Abu Dhabi index.

The Saudi index was down 1.3%, with telecom operator Zain 2.6% lower and Etihad Etisalat falling 3.4%.

Riyad Bank was down 0.9%, Arab Bank lost 1.7%, and Samba Financial Group slipped 0.6%.

Banks weakened ahead of the U.S. Federal Reserve’s expected move later this month to cut interest rates.

Top Saudi banks are scheduled to start reporting second-quarter earnings this week.

“Investors are taking profit as they do not see any major trigger in the market except the MSCI’s second tranche kicking in next month,” said a Gulf-based analyst, who asked not to be identified.

“Today’s action may be driven by geopolitics, but people are looking at valuations more closely.”

Three of five tranches of Saudi stocks have joined the FTSE emerging-market index this year and the market also completed the first phase of joining the MSCI emerging-market benchmark in May. A second phase is due in August.

The Saudi index is up almost 14% year-to-date.

Dubai’s index was 0.2% lower, dragged down by real estate as Damac Properties lost 1.0%, construction firm Arabtec declined 0.6% and the largest listed developer, Emaar Properties, was down 0.4%.

The Abu Dhabi stock market, continuing its gains since last week, rose 0.5%, boosted by banks and property stocks.

Abu Dhabi Islamic Bank rose 1.1%. First Abu Dhabi Bank added 0.6% after surging 6.5% on strong second-quarter earnings on Thursday.

Aldar Properties, the largest property developer in Abu Dhabi, was up 0.5%.

Qatar’s index was up 0.1% on energy stocks such as Qatar Gas Transport, up 1.2%, and Qatar Fuel Co , up 1.0%. (Reporting by Tuqa Khalid; Editing by Dale Hudson)