KUWAIT'S Central Bank stepped in yesterday to prop up one of the country's biggest banks and said it was considering guaranteeing deposits in domestic banks ?? in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.

In Saudi Arabia, meanwhile, the government said it would deposit 10 billion riyals (US$2.7 billion) into the Saudi Credit Bank to help lower-income citizens deal with financial difficulties, the country's Al-Ektisadiya newspaper reported.

The two moves came just a day after finance ministers from the six-nation Gulf Cooperation Council held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region's banks face no liquidity crisis.

Kuwait's decision to stop trading in shares of Gulf Bank, however, painted a different picture. The action sent a shock wave through the country's bourse, which closed down almost 3.5 percent and brought its year-to-date losses to over 19 percent.

"The halting of Gulf Bank shares spread panic in the bourse today because the government has been saying banks are safe from (global financial crisis) losses," said investor Ahmed al-Fadhli.

The central bank order said trading in Gulf Bank shares would be suspended pending an investigation into the derivatives deals that caused the losses.

The bourse's statement said some investors had balked at covering their losses, but neither the central bank nor Gulf Bank indicated the scope or time frame of the bank's losses.

But one banking official with access to the information estimated the bank's losses at up to 200 million dinars (US$749 million).

Over the past few weeks, Kuwaiti investors have voiced clear concerns about the market. One stockbroker unsuccessfully sued to temporarily close the bourse while other traders last week stormed out of the exchange, demanding the government intervene to halt their near-daily losses.

Oil revenue

Investor al-Fadhli said about 40 brokers yesterday walked from the exchange to the nearby seaside Seif Palace, demanding to see the prime minister, Sheik Nasser Al Mohammed Al Sabah, to ask for more government intervention.

The Gulf Bank news further fueled market turbulence in the broader GCC, not just in Kuwait, a tiny country which is far more dependent on oil revenue than many of its other Gulf counterparts.

Oman's stock exchange was down about 8.29 percent while Qatar's exchange was off almost 9 percent. Saudi's benchmark Tadawul index was down a moderate 3.06 percent, a day after plummeting over 8 percent.

Sunday is a normal business day in the Arab Mideast, which usually observes Friday as the weekend.

So far, the Gulf countries have been thought to be protected from the crisis, in part because of the cushion of oil money many of them have built up during years of high oil prices. However, because most of the region's banking sector is privately held, not much is known about the institutions' true risk exposure levels.

The Gulf Bank news also appeared to have pushed the Kuwaiti government to take a step it has so far resisted - guaranteeing deposits. The country currently makes no deposit guarantees.

The central bank said it would propose an urgent bill to guarantee bank deposits in an effort to "boost confidence in our banking sector and enhance its ability to compete with banks in countries where deposits were guaranteed by the state" but gave few details on specifics.The guarantee would cover local Kuwaiti banks.

The bourse's statement stressed that Gulf Bank's financial stability would not be affected by the losses. It was not clear how long trading in the bank's shares would be suspended.

The various Gulf countries have taken a range of measures to maintain confidence in their respective markets, including cutting interest rates and pumping billions into their respective economies.