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UPDATE 2-Saudi Arabia, allies give Qatar two more days to accept demands

* Trump calls Gulf Arab leaders, voices concern

* Terrorist financing is "overriding" issue-Trump

* Qatar says can discuss "legitimate" concerns

* But Doha says four states target its sovereignty (Adds Trump tweet in paragraph 11)

DUBAI/DOHA, July 3 (Reuters) - Four Arab states which accuse Qatar of supporting terrorism agreed to extend until late on Tuesday a deadline for Doha to comply with a list of demands, as U.S. President Donald Trump voiced concern to both sides about the dispute.

Qatar has called the charges baseless and says the demands, including closing Qatar-based al Jazeera TV and ejecting Turkish troops based there, are so severe that they seem intended to be rejected.

Saudi Arabia, Bahrain, Egypt and the United Arab Emirates (UAE) have raised the possibility of further sanctions against Qatar if it does not comply with the 13 demands presented to Doha through Kuwait, which is acting as a mediator.

According to a joint statement on Saudi state news agency SPA, the four countries agreed to a request by Kuwait to extend by 48 hours Sunday's deadline for compliance.

They have not specified what further sanctions they could impose on Doha, but commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar.

Foreign ministers from the four countries will meet in Cairo on Wednesday to discuss Qatar, Egypt said, while Arab media reported that Qatari foreign minister Sheikh Mohammed bin Abdulrahman al-Thani arrived in Kuwait on Monday to deliver Doha's formal response to the Arab demands.

The four states cut diplomatic and commercial ties with Qatar on June 5, accusing it of supporting terrorism, meddling in their internal affairs and advancing the agenda of regional foe Iran, all of which Qatar denies. Mediation efforts, including by the U.S., have been fruitless.

Trump spoke separately to the leaders of Saudi Arabia, Qatar and the Crown Prince of Abu Dhabi in the UAE to discuss his "concerns about the ongoing dispute", the White House said.

"He reiterated the importance of stopping terrorist financing and discrediting extremist ideology. The president also underscored that unity in the region is critical to accomplishing the Riyadh Summit's goals of defeating terrorism and promoting regional stability," the White House said.

"President Trump, nevertheless, believes that the overriding objective of his initiative is the cessation of funding for terrorism," it said.

On Monday, Trump tweeted: "Spoke yesterday with the King of Saudi Arabia about peace in the Middle-East. Interesting things are happening!"

URGING RESTRAINT

A State Department official said on Sunday that the United States encourages "all parties to exercise restraint to allow for productive diplomatic discussions."

Qatari officials say the demands are so strict that the four countries never seriously intended them as a negotiating position and see them as being aimed at hobbling Doha's sovereignty.

Qatar says it is interested in negotiating a fair and just solution to "any legitimate issues" of concern to fellow member states of the Gulf Cooperation Council, which groups Saudi Arabia, Kuwait, Oman, Qatar, Bahrain and the UAE.

Qatar's Gulf critics accuse Al Jazeera of being a platform for extremists and an agent of interference in their affairs. The network has rejected the accusations and said it will maintain its editorial independence.

Gulf countries have insisted the demands were non- negotiable.

The UAE's minister of state for foreign affairs, Anwar Gargash, has played down the chances of an escalation, saying "the alternative is not escalation but parting ways", suggesting Qatar may be forced out of the GCC.

The Western-backed body was formed in 1981 in the wake of Iran's Islamic Revolution and the outbreak of the Iran-Iraq war.

Speaking in Washington last week, the Qatari foreign minister said the GCC was set up to guard against external threats. "When the threat is coming from inside the GCC, there is a suspicion about the sustainability of the organization," Sheikh Mohammed told reporters. (Additional reporting by Hadeel Al Sayegh in Dubai, Jeff Mason in Bridgewater, N.J. and Susan Heavey in Washington; Writing by William Maclean; Editing by John Stonestreet and Richard Balmforth)