Most Middle East stock markets tumbled on Monday in a global sell-off triggered by China, while growing tensions between Saudi Arabia and Iran added to the gloom.

Chinese stocks slumped by 7 per cent after weak manufacturing data, causing emerging markets in general to suffer their biggest fall in four months.

"The broad market sell-off is part of the general weakness in global equity markets," said Muhammad Shabbir, head of equity funds at Dubai-based Rasmala Investment Bank.

The lack of a catalyst that would support a market rally in the Gulf leaves the region vulnerable to volatile trade, he added. In past years, the region outperformed emerging markets because of its strong budget and current account surpluses, but most of those surpluses have now been erased by low oil prices.

"While rising geopolitical tension makes headlines and weighs on sentiment, weakness in oil and worries about Chinese demand remain the primary drivers of GCC stock markets," said Akber Khan, director of asset management at Doha's Al Rayan Investment.

Saudi Arabia cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. The attack came after the Saudis executed a leading Shi'ite cleric, Nimr al-Nimir, on terrorism charges, infuriating predominately Shi'ite Iran.

Local investors have largely ignored geopolitical tensions in the Gulf for some years. But the latest events marked an escalation, and foreign investors in particular may become more cautious about the region.

Reflecting that caution, the Saudi riyal fell to near a 16-year low against the US dollar in the forward foreign exchange market on Monday. Meanwhile, the cost of insuring Saudi sovereign debt against default rose to multi-year highs .

Riyadh's equities benchmark faced a heavy sell-off in the last hour of trade as investors dumped stocks across the board. The index sank 2.4 per cent.

Savola, one of the few Saudi companies with a presence in Iran, fell 3.2 per cent. The food conglomerate has factories in Tehran; Iran provided 11 per cent of its revenue in the third quarter of 2015 and the company's revenues from Iran totalled 2 billion riyals ($534 million) in the first nine months of 2015, its financial statements showed.

Islamic lender Alinma retreated 3.7 per cent after rising in early trade. Health insurer Bupa Arabia, usually a favourite of foreign investors, plunged 9.6 per cent.

Petrochemical shares showed some early strength after being hit hard by higher natural gas feedstock prices in last week's 2016 state budget. But they succumbed in late trade, with Saudi Basic Industries losing 1.6 per cent.

While Bahrain also severed diplomatic ties with Iran, relations between Iran and other Gulf Arab countries may not become quite as confrontational. The UAE said it was merely downgrading diplomatic ties with Tehran and limiting the number of Iranian diplomats in the country.

But the UAE also stands to lose from greater tensions. The UAE is Iran's fourth-largest trading partner, and the International Monetary Fund has estimated the lifting of economic sanctions on Iran early this year could add 1 percentage point to the UAE's gross domestic product growth from 2016 to 2018.

Dubai, with its sophisticated trading infrastructure, could grab most of that benefit - but any benefit may now be reduced or delayed by politics.

The Dubai stock index dropped 1.6 per cent on Monday with all but two shares ending lower. Blue chip Emaar Properties fell 1.8 per cent in its fourth session of declines, while Dubai Islamic Bank lost 1.5 per cent and Emirates NBD, a stock that rarely trades, sank 1.3 per cent.

Trading volumes were thin, partly because institutional and foreign investors were still largely absent from regional markets after New Year holidays, leaving local retail investors to dominate activity even more than usual.

"Retail day traders are impulsive and are reacting to the slump in Chinese stocks," said Tamer Kamal, head of asset management at Abu Dhabi's Union National Bank.

Abu Dhabi's benchmark retreated 1.3 percent; Dana Gas , whose affiliate Crescent Petroleum has been in dispute with Iran over natural gas supply, dropped 5.8 percent and Aldar Properties lost 3.0 percent.

In Qatar, the index tumbled 2.6 percent in modest volumes. Two property developers, Ezdan Holding and Barwa Real Estate, led declines, slumping 4.1 and 3.6 percent respectively.

Cairo's main index declined 1.5 percent, erasing all of Sunday's gains in a broad sell-off. Blue-chip lender Commercial International Bank fell 2.5 per cent after surging 7.4 per cent in the previous session. Orasom Telecom , a favourite of non-Egyptian Arab investors, sank 5.6 per cent.-Reuters