Gulf project finance may move away from dlr -report

DUBAI, March 1 (Reuters) - Gulf Arab firms seeking project financing this year could refrain from U.S. dollar-denominated loans on expectations regional oil producers will allow their dollar-pegged currencies to appreciate, a magazine reported.

Banks in the world's top oil-exporting region are finding it more difficult to raise loans in dollars and are moving toward other currencies, such as euro or yen, Middle East Economic Digest (MEED) said in its Friday edition, citing bankers.

"The availability of dollar funding will get worse before it gets better," Rajan Malik, vice-president and head of syndications at Gulf International Bank, was quoted as saying in the weekly magazine.

Gulf Arab currencies strengthened last week as the dollar held near a record low against the euro, prompting speculation that Saudi Arabia and its neighbours would sever their links to the dollar as Kuwait did last May.

"There is a lot of speculation about de-pegging," MEED quoted Fahad al-Raqbani, senior manager at Abu Dhabi investment agency Mubadala, as saying.

"There is a lot of interest among local banks to fund in GCC currencies," he said.

Inflation is becoming a growing concern across the region, where price rises hit a quarter-century peak of 7 percent in Saudi Arabia in January.

But Gulf central banks are constrained in their fight against inflation by their dollar pegs, which force them to shadow U.S. monetary policy at a time when the Fed is cutting rates in an attempt to ward off recession.

Companies could opt to take out loans in several currencies rather than just in dollars as they have traditionally done, MEED said.