Gulf markets slid on Sunday as unrest spread across the world's top oil exporting region and more selling is expected as investors cut their exposure despite a buoyant economic outlook for the region.

"These are retail driven markets and retail investors put sentiment over science," said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

"Even though fundamentals are good, they would rather preserve their cash at this point. Political instability is getting priced in and I expect further selling pressure unless we see some clear, positive developments."

Kuwait's index slumped to a seven-month low, Qatar fell to its lowest close since early December and the Oman, Abu Dhabi and Dubai benchmarks saw their largest declines in three weeks.

Dubai fell 3.7 per cent, while Saudi Arabia slid 0.8 per cent to a three-week low.

"Investors are little more on edge - the whole story that this unrest was just about Egypt or North Africa, has taken a serious hit," said Akram Annous, Mena strategist at Al Mal Capital.

Qatar's economy is forecast to expand 12.8 per cent in 2011, while the GDP of the five other GCC members are all expected to rise by more than 3.5 per cent.

"Financial news is secondary to political news right now," said a Dubai-based regional trader who asked not to be identified. "Foreigners are fleeing from anything related to the region."

Kuwait's Zain fell 7.3 per cent, its biggest drop in eight months after the telecoms operator rejected bids for a quarter-stake in its Saudi unit, putting Etisalat's $12 billion takeover of Zain in doubt.

Zain Saudi fell 2.6 per cent to a three-week low, while bidder Kingdom Holding dropped 3.3 per cent.

"The rejection of the Zain Saudi offers increases uncertainty, hence the nervousness among investors and Zain's share price falling," said Irfan Ellam, vice president, and Al Mal Capital telecoms analyst. "Zain needs to find a buyer for its Zain Saudi stake and due diligence will take time."

Zain shareholder, the Kharafi group, is leading Zain's sale and Kharafi firms tumble. National Investments Company dropped 6.3 percent and National Industries Group  fell 7.9 per cent.

Kuwait banks also slid, with Zain shares widely used by investors as collateral. National Bank of Kuwait and Burgan Bank lost 4.4 and 3.8 percent respectively.

Kuwait's index fell 2.5 per cent to its lowest finish since July 6 and biggest drop since May 25.

Dubai's Union Properties plunged 6.3 per cent to a new all-time low, extending declines since its fourth-quarter loss increased five-fold.-Reuters