* Alawwal extends gains for second day on merger talks with SABB
* Analysts say sector undergoing shift, stiff competition
* Petrochemical regain some positive momentum
* Dubai, Qatar slip to multi month low
* Abu Dhabi weighed down by blue chips
* Egypt retreats on profit taking
By Celine Aswad
DUBAI, April 27 (Reuters) - Shares in two Saudi banks that are in early merger talks moved in opposite directions on Thursday while other regional markets ended the week down as investors had little fresh company earnings and news to reallocate their funds or build positions.
Alawwal Bank extended the previous session's 8.6 percent gains, adding 2.2 percent. Shares in Saudi British Bank (SABB), however, slipped 0.9 percent after jumping 6.8 percent on Wednesday.
Six other commercial lenders rose, with the largest by assets, National Commercial bank up 1.0 percent.
If Alawwal and SABB were to merge they would form the third largest bank by assets. Analysts have said that although the merger is generally positive for both banks, Alawwal would be able to reap the benefits of lower cost of deposits.
Other analysts pointed out that though this may not be a harbinger of other potential bank mergers in Saudi Arabia, the industry's landscape will start to change and competition will start to stiffen.
"Smaller players that used to compete for market share with Alawwal will now face less strenuous competition because they will be targeting different clients," said a Riyadh-based analyst.
"But on the other hand you have more interest from other regional and international banks wanting to set up shop in the kingdom, so the industry's landscape is in the midst of a change."
Earlier this week, Citigroup obtained a licence to conduct capital markets business in Saudi Arabia, after an absence of almost 13 years. Also, a senior executive of Dubai's Emirates NBD, which already has a license to operate in Saudi Arabia, told Reuters they have plans to expand their presence in the kingdom in the next 12 months.
Petrochemicals, most of which have still to report earnings, reversed from declines earlier in the session and closed modestly higher. Saudi Kayan Petrochemical added 0.6 percent after falling as much as 1.1 percent earlier in the day.
Dubai's index lost 0.6 percent near a 4-1/2 month low as decliners outnumbered gainers 20 to 12.
Emaar Malls dropped 4.8 percent as its shares went ex-dividend on Thursday. Dubai Financial Market, the only listed exchange in the Gulf, lost 2.5 percent.
In neighbouring Abu Dhabi, the index also fell 0.6 percent, dragged down by losses in blue chips. Developer Aldar Properties, which has yet to report first quarter results, fell 1.8 percent.
Qatar's index dropped 1.1 percent to touch a fresh 20-week low. Only one share rose while 16 others declined.
"First quarter results from Qatar have so far not been a game changer for the market," said a Doha-based asset manager.
The country's largest petrochemical producer, Industries Qatar, fell 3.0 percent, wiping out gains made on Wednesday after announcing that first quarter net profits grew by a third on the previous year.
In Egypt, the index retreated 1.2 percent on profit taking. Some of the previous session's outperformers eased, with Global Telecom Holding down 0.7 percent.
Kuwait's bourse was shut for a public holiday.
* The index added 0.4 percent to 6,946 points.
* The index fell 0.6 percent to 3,417 points.
* The index lost 0.6 percent to 4,513 points.
* The index dropped 1.1 percent to 10,090 points.
* The index retreated 1.2 percent to 12,526 points.
* The index lost 0.1 percent at 1,332 points.
* The index rose 0.3 percent to 5,525 points.
Editing by Mark Heinrich