Regional markets are likely to remain under selling pressure on Sunday, with intra-day volatility high, because of the threat of U.S. military action against Syria.
The European Union blamed the Syrian government on Saturday for the August 21 chemical weapons attack in Syria, but urged Washington to wait for a report from United Nations weapons inspectors before making any military response.
President Barack Obama asked Americans to back him in launching an attack on Syria, which would be a limited action of up to 90 days without ground troop involvement.
A pivotal Congressional vote is expected after U.S. lawmakers’ return from a summer break on Monday. The detailed report from the U.N. is expected in a week; final votes in Congress could come after the U.N. report is announced.
Gulf markets booked two consecutive weeks of losses on Thursday, underperforming world shares because of the close proximity of Syria, retail investor dominance of the markets and early-year rallies that spurred investors to book profits.
"The Gulf will be waiting to see the response of Iran if there is an attack" says an Abu Dhabi-based trader who asked not to be identified due to company policy.
"In a counter-reaction from Syria's allies, Iran could react and cause disturbances in the wider region. I don't expect any bottoming out yet. Markets will continue to be volatile and exaggerate on the downside until there is clarity on whether there will be an attack or not. At the moment we are in a gray area of anticipation."
In Egypt, the army launched an attack against Islamist militants in North Sinai on Saturday, killing at least nine people, security officials said.
An army crackdown against the Muslim Brotherhood has incensed Islamists. A dire security situation, which included an assassination attempt on the interior minister last week and an uncertain political outlook, is keeping foreign investors away.
U.S. crude oil futures settled on Friday at their highest level in more than two years, up $2 to $110.2 per barrel, because of Syria tensions.
Other world markets, however, have now put Syria on the backburner. Bond yields and the U.S. dollar fell on Friday after a report showed U.S. jobs growth was less than expected in August, adding to uncertainty over when the Federal Reserve will begin to trim its massive bond-buying program.