Stock markets in energy-rich Gulf states dropped on Tuesday, hit by rising tensions between Saudi Arabia and Iran, a royal purge in Saudi Arabia and other regional disputes.

The decline was led by shares in Kuwait and Qatar, where the stock index dropped to its lowest level since March 2011 as the country reels from a five-month-old boycott by neighbouring nations.

Six Gulf bourses ended lower and the Saudi market was down 2.9 percent in afternoon trade at levels last seen more than five months ago.

Sunni-ruled Saudi Arabia and Shiite Iran traded accusations after Saudi defence forces on Saturday (Shenzhen: 002291.SZ - news) downed a ballistic missile near Riyadh international airport, reportedly fired by Huthi rebels in Yemen.

Saudi shares were also shaken by the arrest of several leading business figures including billionaire Prince Al-Waleed bin Talal in what the authorities said was an anti-corruption sweep.

"Tension and war drums between Saudi Arabia and Iran have caused panic among traders across the Gulf," Kuwaiti financial analyst Ali al-Nimesh said.

"We have seen a sell-off wave by investors who are worried that the dispute may develop into a full-fledged war," Nimesh told AFP.

Riyadh accused Iran of supplying missiles to the Huthis in what Crown Prince Mohammed bin Salman called a "direct military aggression" by Tehran.

The Boursa Kuwait index fell 4.4 percent at one point but recovered slightly to end the day down 2.8 percent. Kuwait is also facing an internal political dispute that forced the cabinet to resign last month.

The Qatar Exchange index dropped 1.1 percent to close below the 8,000-point mark for the first time since March 2011.

Since the start of the year, the Qatari bourse has slumped 24 percent, the most in the Gulf, hurt by the region's worst diplomatic crisis in decades.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt on June 5 severed ties with Qatar, accusing it of supporting extremism and being too close to Iran, charges that Doha has denied.

"The Qatar bourse has been affected by the withdrawal of some investors, including foreigners," Nimesh said.

The Dubai Financial Market index declined 1.8 percent to close the day below the 3,500-point level for the first time in four months.

The Abu Dhabi market dropped 0.35 percent, Bahrain's bourse slipped 1.0 percent and Muscat inched down 0.01 percent.

source: AFP