MIDEAST WEEKAHEAD-Egypt share gains hinge on clearer policy signals

By Tom Pfeiffer

CAIRO, Oct 10 (Reuters) - Egyptian stocks seem unlikely toresume this year's world-beating rally until the governmentshows how and when it will begin cutting fuel subsidies to reinin the budget deficit and secure a $4.8 billion IMF loan.

Mixed messages on the long-awaited reforms and a shiftingtimetable for an IMF deal have kept investors on tenterhooks forweeks since a new government signalled a new resolve tostabilise its finances and revive inward investment.

A surge of more than 50 percent in Egypt's main share index

since President Mohamed Mursi took office in June wasdriven mostly by retail investors optimistic that the country isemerging from an economic crisis sparked by last year's popularuprising, thanks partly to aid from Gulf states.

But foreign investors and many local institutions say theyneed to know more on the timing and detail of subsidy reform -key to any revival in private investment - and are frustrated bymixed messages from officials.

They also worry about government plans unveiled at theweekend to revise past investment contracts if they representeda poor deal for the state.

Investment Minister Osama Saleh said the reviews of landsale deals and other contracts would not harm investors. But theplan has unnerved investors who believed a wave of legalchallenges to deals signed by state officials under formerPresident Hosni Mubarak had been largely settled.

Osama Mourad, Chairman of Cairo-based Arab FinanceBrokerage, said at an investment conference that he was "deeplydisappointed" by the probes first outlined by President Mursi ina speech at the weekend. Egypt's main share index slipped 2percent on Monday although it has now rebounded.

Some investors are sceptical that the government will meetits latest deadline for an IMF deal.

"The core issue is still the economy. The government is goodat sweet talking but subsidies need taking care of," saidTeymour el-Derini at Naeem Brokerage. "Let's say the IMF doesn'thappen in October, what will happen then? I'm pretty sure itwon't, knowing how this country is."

Derini said he expected retail investors to continue pushingup specific stocks based on unconfirmed speculation, but that"we're going to go sideways for now whatever happens.

Finance Minister Mumtaz al-Saeed told Reuters at aninvestment conference in Cairo on Tuesday that the governmenthoped to seal an IMF deal within two weeks after negotiationsset for the end of the month. This encouraged some investors.

A fixed-income analyst in Cairo said he expected treasuryyields to tick higher in coming days before resuming theirdeclines from historic highs on optimism that Egypt is closingin on an IMF deal despite the uncertainty over economic reforms.

"The IMF deal is now expected to be signed in early Novemberand we expect Egypt to get $1 billion as a start," the analystsaid. "Along with a Turkish aid deposit and government talk ofsukuk (Islamic bonds), this will definitely affect yields."

He said fixed-income rates were likely to fall until the endof the year but would first tick higher at auctions in thecoming week.

The Egyptian pound has fallen 4.5 percent since the start oflast year's uprising. Economists say the drop would have beenfar deeper if the central bank had not defended the pound'svalue.

"Reserves are touching $15 billion. The only way to hit theeconomic problem is to hit subsidies and everyone knows it,"said an equity trader in Cairo.

Analysts say Egypt needs to maintain foreign reserves of atleast $15 billion to shore up the pound. Reserves have plungedby more than half since the popular uprising in January 2011scared away tourists and investors, two key sources of foreigncurrency.

(Additional reporting by Shaimaa Fayed; Editing by SusanFenton)

((thomas.pfeiffer@thomsonreuters.com)(+202 2578 3290)(ReutersMessaging: thomas.pfeiffer.thomsonreuters.com@reuters.net))