DUBAI, March 20 (Reuters) - Saudi Arabia's bourse posted its largest one-day decline in three months on Tuesday as profit-taking on large-caps and speculative stocks drags the benchmark from Sunday's three-and-a-half-year peak and other Gulf bourses also decline.
The kingdom's benchmark fell 1.3 percent in its biggest one-day dip since December 13.
Heavyweights dropped, as Saudi Basic Industries Corp (SABIC) slipped 1.2 percent, Riyad Bank shed 3.8 percent and Samba Financial Group dipped 1 percent.
"This is mostly profit-taking and there isn't any change in fundamentals," said Ahmed Raza Khan, head of research, asset management at Mefic Capital.
"Previous rallies in past years saw mid-caps outperform large-caps and insurance stocks took the lead. But we might see a rotation now with large-caps helping the next leg of the rally with investors putting underweight ratings on small-caps," he adds, mentioning strong upside potential in the banking sector.
Mid-cap stocks recently targeted by speculative traders fell in heavy volumes.
Dar Al Arkan slumped 7.6 percent, telecoms operator Zain Saudi dropped 9.6 percent and Emaar Economic City was down 5.9 percent.
In the UAE, Dubai's bourse fell to a near two-week low with heavyweight Emaar Properties weighing.
Shares in Emaar fell 2.6 percent to a 12-day low. The developer on Tuesday morning proposed a 10 percent cash dividend.
"Looking back at historical dividend payments, it's on the high-end of their dividend payout ratio. Considering the environment they're in, it wouldn't be prudent from them to distribute something higher," said a Dubai-based portfolio manager.
Emirates NBD dipped 3.2 percent and Dubai Financial Market, the only listed Arab bourse, shed 2.6 percent.
The emirate's index dropped 1.5 percent, but is still up 26.3 percent from mid-January's seven-and-a-half-year low.
"The market has made a big move, (very) fast and expectations ran hot so this normalisation trade is normal. Volatility has come down quite a bit compared to previous days so this could be a signal that it will move higher in the coming weeks," the portfolio-manager added.
Abu Dhabi's benchmark declined 0.7 percent, down for a third session.
Elsewhere, Egypt's main index rose 0.9 percent, lifting from Monday's three-week closing low.
Real estate and telecom stocks supported the benchmark with Talat Mostafa rising 5.8 percent and Orascom Telecom up 2 percent.
In Qatar, the index ended 0.4 percent lower, extending its 2012 decline to 1.5 percent. It is the only Gulf bourse trading at a year-to-date loss.
Industries Qatar fell 5.1 percent, after hitting its ex-dividend date. The company's board approved a cash dividend of 7.5 riyals ($2) per share, according to a bourse statement.
* The index fell 1.3 percent to 7,519 points.
* The index dropped 1.5 percent to 1,643 points.
* The index slipped 0.7 percent to 2,587 points.
* The benchmark declined 0.4 percent to 8,647 points.
* The measure climbed 0.9 percent to 5,079 points.
* The index gained 0.4 percent to 5,922 points.
* The measure eased 0.03 percent to 6,229 points.
* The measure eased 0.09 percent to 1,147 points. (Editing by Reed Stevenson)