The Abu Dhabi Securities Exchange General Index rallied to the highest level in more than three years as investors bought banking stocks to take advantage of higher dividends.
First Gulf Bank, which recommended a cash dividend of 83 fils per share for last year, rose 4.2 per cent. Abu Dhabi Commercial Bank advanced to the highest level in more than four years after raising US$1.5 billion from a bond sale.
The ADX gained 1.7 per cent to 3,056.39 points, the strongest close since October 2009.
Lenders have raised dividends as they recover from the effect of the global credit crisis. Abu Dhabi banks offer an average dividend yield of 4 per cent, versus 3.3 per cent for the Bloomberg GCC 200 Financial Index of the GCC's most-traded stocks.
"The prospects of the banks profits in 2013 are good in addition to the attractive dividend yield," said Nabil Farhat, partner at Abu Dhabi-based Al Fajer Securities.
The Abu Dhabi measure was the biggest gainer in the GCC yesterday and about 316 million shares were traded, compared with a 12-month daily average of 82 million.
ADCB, the third-biggest UAE lender by assets, said last month it would pay a 25 per cent cash dividend for last year, up from 20 per cent a year earlier. The lender's fourth-quarter profit rose 19 per cent, beating estimates.
First Gulf Bank, whose profit grew 12 per cent last year, advanced to Dh13.7, the highest since July 2008. The bank will probably post the fastest loan growth in the UAE this year, EFG-Hermes Holding said in December.
Aldar Properties and Sorouh Real Estate, Abu Dhabi's biggest property developers, rallied 1.3 per cent and 2.7 per cent. Shareholders of both companies will meet on Sunday to vote on a potential merger after failing to reach quorum at an extraordinary general meeting last week.
The Dubai Financial Market General Index rose 0.7 per cent to close at 1,938.88.
* Bloomberg News