Investors will continue to monitor the budgetary wrangling in the United States this week as optimism increases that legislators will be able to come to an agreement.
Optimism about a budget deal and better-than-expected economic reports helped to boost markets in the UAE last week along with a raft of announcements that suggested the country's economic recovery continues apace.
On Thursday, the Dubai Financial Market General Index rose 1.2 per cent, the biggest daily gain in two months. This helped to push the index to its first weekly gain in six weeks, adding 0.7 per cent to 1,607.90. The Abu Dhabi Securities Exchange General Index rose 1.22 per cent to 2,674.56 last week.
"It's our expectation that an agreement will likely take place, though not necessarily by the beginning of the year," said Adel Merheb, the managing partner of Trade Your Market, a stock research and analysis company. "The Republicans' suggestion that something could be in the pipeline has been grabbing the market's attention."
The so-called fiscal cliff is a mix of automatic tax increases and spending cuts that will take effect at the start of next year if policymakers cannot reach a follow-up deal to last year's national debt agreement.
Emaar Properties said on Thursday it planned to expand Dubai Mall. The announcement followed that of the Dubai Government at the start of the week saying that the company will help to develop a new district called Mohammed Bin Rashid City. The plan includes a shopping centre that will be bigger than Dubai Mall. The company's shares rose 3 per cent last week to finish at 3.76, the highest since October 7.
Dubai is resuming a number of projects that were stopped after the global credit crunch shrank property values by 65 per cent and resulted in construction companies pausing developments. New projects that have been unveiled in the past two months include a replica of the Taj Mahal that is four times bigger than the original in India.
Dubai is the top performing index among the Arabian Gulf states this year, gaining 19 per cent.
Elsewhere in the region, political turmoil in Egypt is likely to continue weighing on the market there. The nation's EGX30 index has plummeted almost 12 per cent since the president, Mohammed Morsi, the president, issued a decree on November 22 that gives him power to operate without judicial oversight and protects the Islamist-dominated constitutional assembly from legal challenges.
Demonstrations took place in Cairo, Alexandria and Mahalla on Friday after the constitutional committee approved a draft charter. Protesters say the draft has been hijacked by Islamists.
The index fell 16 per cent last month after rallying at the start of November following an announcement the government had come to a long-awaited agreement with the IMF.
"Eyes are now fully focused on the constitutional crisis," Neil Shearing, the Capital Economics chief economist emerging markets, wrote in a research note. "We suspect that the uncertainty will continue to weigh on Egyptian assets in the very near-term at least."
Data released last week in the US showed that consumer confidence gained last month to the highest in more than four years and GDP expanded at a 2.7 per cent annual rate in the third quarter, up from the 2 per cent previously estimated. The S&P500 rose for a second week, increasing 0.5 per cent to 1,416.18.
The Stoxx 600 index of European equities advanced last week, rising 0.9 per cent to 275.78 after euro-region finance ministers eased the terms of loans to Greece.
Yesterday, the Saudi Tadawul All-Share Index rose 2 per cent to 6,660.96 on optimism that the king's health is improving. The index lost 3.8 per cent in November amid concern about the health of King Abdulla, who underwent back surgery. State television on Friday showed pictures of the leader of the oil-rich state meeting with government officials.
The Tadawul was the only Gulf market active yesterday.
Markets in the UAE will be closed today and tomorrow for National Day celebrations.