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MIDEAST STOCKS-Qatar sinks to 5-year low, Egypt banks hurt by reserve ratio rise

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* Foreign funds exit Qatar before Q3 results

* Index now down nearly 18 pct since diplomatic crisis began

* Egypt's CIB, ADIB down after c.bank says to raise reserve ratio

* Saudi insurer MedGulf slumps after regulator's warning

* Dubai outperforms Abu Dhabi in active trade

DUBAI, Oct 4 (Reuters) - Qatar's stock index sank to a five-year low on Wednesday as foreign funds continued to sell ahead of third-quarter corporate earnings, while banks in Egypt were hit by news that the central bank would raise the required reserve ratio.

The Qatari index lost 1.6 percent in thin trade, bringing its losses since four other Arab states broke off ties with Doha on June 5 to nearly 18 percent. Banks were particularly hard hit, with Commercial Bank down 3.6 percent.

"There is too much uncertainty and negative headlines about the Qatari banking sector. Third-quarter results will be watched very closely to see just how much the diplomatic rupture has hurt those banks' asset quality," said a Paris-based fund manager.

Third-quarter results are expected to be announced later this month. Banks have been hurt as neighbouring states have pulled out their deposits because of the diplomatic crisis.

Qatar's central bank governor told local media on Wednesday that a withdrawal of deposits by neighbouring countries had not hurt the banking sector and the government had enough money to protect banks. But he also said the government could only be a funding source of last resort.

Oil-linked stocks were also weak, with oil and gas drilling service provider Gulf International Services dropping 3.9 percent - taking its losses for the year to 40.5 percent.

In Egypt, the largest listed lender, Commercial International Bank, fell 2.1 percent and Abu Dhabi Islamic Bank Egypt tumbled 6.1 percent after the central bank said it would raise the required reserve ratio to 14 percent from the current 10 percent on Oct. 10.

Analysts at Arqaam Capital said the move could be a "precursor to a looser monetary policy in 2018", but in the meantime it could weigh on Egyptian banks' net interest margins and put downward pressure on their return on equity. The Egyptian stock index fell 0.4 percent.

SAUDI ARABIA, UAE

The Riyadh index rose 0.6 percent, with the main support coming from the banking sector; National Commercial Bank climbed 1.8 percent.

Analysts at Al Rajhi Capital estimate the sector's profits rose slightly in the third quarter because of higher net interest margins and broadly flat bad loan provisions. Saudi firms are expected to release quarterly results later this month.

Mediterranean and Gulf Cooperative Insurance (MedGulf) slumped 5.5 percent in active trade after saying it had received a warning from the central bank, which told the company to improve its capital adequacy ratio by Dec. 31 or be suspended from issuing new insurance policies.

This year the regulator has cracked down on many insurance companies. SABB Takaful had dropped 3.6 percent on Tuesday after the regulator temporarily stopped it from issuing or renewing insurance or savings products, citing weaknesses in the firm's internal controls. On Wednesday it ended flat.

The Dubai index added 0.8 percent in its most actively traded session since early August. Mid-to-large cap stocks were some of the top performers, with the Gulf's only listed exchange, Dubai Financial Market, rising 2.7 percent.

In Abu Dhabi the index edged down 0.2 percent with the main drag coming from the banking stocks; First Abu Dhabi lost 0.5 percent.

HIGHLIGHTS

SAUDI ARABIA

* The index rose 0.6 percent to 7,286 points.

DUBAI

* The index gained 0.8 percent to 3,599 points.

ABU DHABI

* The index fell 0.2 percent to 4,434 points.

QATAR

* The index sank 1.6 percent to 8,153 points.

EGYPT

* The index fell 0.4 percent to 13,882 points.

KUWAIT

* The index added 0.4 percent to 6,693 points.

BAHRAIN

* The index lost 0.3 percent to 1,274 points.

OMAN

* The index fell 0.3 percent to 5,208 points. (Editing by Andrew Torchia, editing by Louise Heavens)