Shares in Dubai Financial Market (DFM) soared on Wednesday, pulling up many other stocks in the emirate, after Reuters reported experts had been hired to advise on a possible merger between the Gulf's only listed bourse and the Abu Dhabi Exchange.

DFM, which had already seen its stock price double this year as Dubai's recovery from its 2009-2010 corporate debt crisis revived share trading, jumped its daily 15 per cent limit to Dh2.34, its highest level since November 2009. Turnover in the stock spiked to its heaviest since June 3 this year.

Reuters had previously reported that merger discussions were underway, and it is not certain that they will end in success. Financial details have not been revealed, so it is unclear whether investors in DFM would actually benefit.

But sources familiar with the plan said the political will for a merger now existed and agreement might be reached by the end of this year.
Local retail investors, eager for fresh trading cues, saw this as a positive sign that the two emirates' governments were determined to develop the markets and attract fresh foreign money.

"The merger is positive because there will be one exchange, which will be more liquid and attract more listings - both primary and secondary," said Sanyalaksna Manibhandu, senior analyst at NBAD Securities.

Retail traders dumped some of their recent favourite shares in order to shift to DFM; Gulf Navigation dropped 7.1 per cent. But the positive sentiment buoyed many shares, with real estate blue chip Emaar Properties up 3.5 per cent and Dubai Investments surging 15 per cent.

Dubai's main index rose 2.7 per cent to 2,830 points, a fresh five-year high, breaking chart resistance at 2,762 points, the August peak. The index is now up 74 per cent year-to-date.

Outside Dubai, investors were generally cautious, partly because of the uncertain global backdrop after the U.S. government shutdown. Abu Dhabi's index climbed only 0.6 per cent.

Saudi Arabia's benchmark was flat for the day. Petrochemical shares added 0.3 per cent but these gains were offset by profit-taking in the retail sector, where the index lost 1.0 per cent.

In Qatar, the index gained 0.7 per cent, up for a third session in the last four since last week's two-week low. Third-quarter earnings are expected to be reported in the next few weeks.

"There is huge caution on Qatari banks going into reporting," said a Doha-based fund manager, who asked not to be identified due to company policy. "More bad news could surface than good. But analysts are aware of what's happening so I don't expect much downside."

Non-Qatari investors were net buyers of shares on Wednesday, bourse data showed.

In Kuwait, the index slipped 0.1 per cent but blue chips gained, continuing a recent pattern. The Kuwait 15 , made up mainly of blue chips, rose 0.4 per cent.

"The investors are going to follow stocks which have been consistent in their dividend distributions and are expected to announce sound financials," said Fouad Darwish, head of brokerage services at Global Investment House.

"Many believe the provisions that have taken a toll on banks are going to be decreased and should this happen, banks will post better financials and add to their distributions, which will in turn reflect on liquidity in the market," he added.-Reuters