Most stock markets in the Middle East ended lower on Wednesday as the killing of Hamas leader Ismail Haniyeh in Iran fuelled tensions in the region, with investors also focused on a U.S. interest rate decision by the Federal Reserve.

Haniyeh was assassinated in the early hours of the morning in Iran, the Palestinian militant group said on Wednesday, stoking fears of further escalation in a region shaken by Israel's war in Gaza and a worsening conflict in Lebanon.

The assassination, which came less than 24 hours after Israel claimed to have killed the Hezbollah commander it said was behind a deadly strike in the Israeli-occupied Golan Heights, appeared to set back chances of any imminent ceasefire agreement in Gaza.

Dubai's main share index dropped 0.4%, with blue-chip developer Emaar Properties falling 4.8%. In Abu Dhabi, the index retreated 0.6%. The United Arab Emirates stock markets were affected by the geopolitical tensions, said Mazen Salhab, Chief Market Strategist MENA, at BDSwiss.

"Investors are looking forward to more earnings releases, which could support further gains, especially in the Dubai market if Emaar reports higher-than-expected results." Saudi Arabia's benchmark index reversed early losses to close 0.4% higher, helped by a 0.7% rise in Al Rajhi Bank.

The Fed is expected to leave rates unchanged, but also to indicate that a reduction in borrowing costs could come as soon as September. It has kept its policy rate in the 5.25%-5.50% range for the past year.

Monetary policy in the six-member Gulf Cooperation Council (GCC) is usually guided by the Fed's decisions as most regional currencies are pegged to the U.S. dollar.

The Qatari benchmark finished flat. Outside the Gulf, Egypt's blue-chip index advanced 1.2%, led by a 1.3% gain in top lender Commercial International Bank. Egypt will aim to keep the price of diesel - one of the country's most commonly used fuels - subsidised by raising other petrol prices, Prime Minister Mostafa Madbouly said in a televised round table with journalists on Tuesday.

  • SAUDI ARABIA rose 0.4% to 12,110
  • ABU DHABI fell 0.6% to 9,339
  • DUBAI down 0.4% to 4,268
  • QATAR was flat at 10,154
  • EGYPT up 1.2% to 29,379
  • BAHRAIN dropped 0.4% to 1,970
  • OMAN lost 0.1% to 4,662
  • KUWAIT added 0.7% to 7,899

(Reporting by Ateeq Shariff in Bengaluru; Editing by Mark Potter)