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DUBAI, May 22 (Reuters) - Egypt's stock market fell sharply in early trade on Monday after an unexpected move by the central bank to raise key interest rates while in the Gulf Qatar outperformed an otherwise quiet market.
All but three of the 30 most traded stocks in Egypt declined after 25 minutes of trade knocking the stock index 1.7 percent lower.
At a meeting of its Monetary Policy Committee, the central bank hiked its overnight deposit rate to 16.75 percent from 14.75 percent and its overnight lending rate to 17.75 from 15.75 percent. This was the bank's first increase in rates since an aggressive hike of 300 basis points in November.
While the rationale behind the interest rate hike was to help combat Cairo's hyperinflation and comes at the recommendation of the International Monetary Fund, equity markets were not prepared for such a move and companies will start to brace for an era of higher cost of borrowing.
"While we expect a market-wide correction as an immediate reaction to the increased opportunity cost of capital, the impact should be felt more on companies that are excessively leveraged," said Cairo's Naeem Brokerage.
Analysts, however, tempered the outlook saying that the correction should be "temporary" because the bulk of the market risk premium has "already been priced into the risk free rate".
Nevertheless investors dashed to exit positions with real estate related shares being the hardest hit; Palm Hills Development Company lost 4.4 percent.
Elsewhere, the Saudi Arabian index was down 0.2 percent on some profit taking from the previous session's 0.8 percent gains.
Declining shares outnumbered advancing ones 89 to 44 with material makers and other industrial companies being the main drag on the index. The polypropylene producer National Industrialization Company was down 1.0 percent.
In the United Arab Emirates, Abu Dhabi's index was flat while Dubai's index was up 0.5 percent on the back of strong gains in commodities shipper Gulf Navigation ; its shares jumped 4.9 percent.
Qatar's index was up 0.8 percent with main support from blue chip shares that are constituents of the MSCI emerging market index. Islamic lender Masraf Al Rayan was up 1.6 percent.
Reporting by Celine Aswad; Editing by Andrew Torchia and Raissa Kasolowsky