* Qatar blue chips already considered at or above fair value

* Saudi sees lowest trading volume this year

* Petchems, consumer discretionary stocks drop

* Egyptian parliament passes several economic reforms

* Telecom Egypt surges after obtaining 4G licence

By Celine Aswad

DUBAI, Aug 31 (Reuters) - Gulf shares retreated on Wednesday, with Qatar's main stock index .QSI dropping 2.9 percent as investors booked profits across the board, though Egypt's main index climbed as investors welcomed economic reforms by the government.

After Wednesday's market close index compiler FTSE is expected to release a list of Qatari stocks to be included in its emerging market index from mid-September.

But Qatari blue chips had already risen over the last few weeks in anticipation, taking them to levels many fund managers see as at or above fair value. Such stocks were sold on Wednesday, with Islamic lender Masraf Al Rayan MARK.QA falling 2.4 percent and Qatar National Bank QNBK.QA losing 3.8 percent.

A monthly Reuters poll of leading Middle East fund managers showed sentiment has on balance turned negative towards Qatar for the next three months because of valuation issues. 

Elsewhere in the Gulf, markets were hit by Brent oil's LCOc1 drop below $48 a barrel. All traded petrochemical shares in Saudi Arabia retreated, with bellwether Saudi Basic Industries 2010.SE falling 0.9 percent. The market's main index .TASI closed down 0.8 percent in this year's thinnest trading volume.

Consumer discretionary stocks were among the top losers because of Saudi Arabia's economic slowdown. Retailer Fawaz Alhokair 4240.SE , which owns franchises such as Banana Republic and Starbucks, lost 3.2 percent.

Dubai's index .DFMGI edged down 0.3 percent after rising in early trade. GFH Financial GFH.DU fell 1.0 percent, erasing some of its 4.3 percent jump in the previous session.

Blue chips dragged Abu Dhabi's index .ADI 0.5 percent lower. Union National Bank UNB.AD dropped 3.0 percent and National Bank of Abu Dhabi NBAD.AD declined 1.9 percent.



ECONOMIC REFORMS

By contrast, Cairo's main index .EGX30 rose 1.0 percent with a little over half of traded shares gaining. Telecom Egypt ETEL.CA , the state-owned landline monopoly, advanced 2.7 percent after saying it had acquired the country's first 4G mobile licence for 7.08 billion Egyptian pounds ($797 million), paving the way for it to become the fourth mobile provider in Egypt. 

El Sewedy Electric SWDY.CA , which rose 2.1 percent on Tuesday after reporting a 68 percent jump in second-quarter profit, added a further 3.8 percent on Wednesday.

Parliament has approved several reforms this week including a plan to introduce value-added tax and steps to make settling tax disputes easier.

Wafik Dawood, portfolio manager at Cairo-based Mega Investment Securities, said such reforms were crucial to attracting foreign funds.

"The proactive steps taken will show just how serious the government is about fixing the problems which have been hindering the country over the last five years," said Dawood.

He said investors were keen to know how authorities would handle Egypt's next currency devaluation. "All eyes will be on the mechanism of the devaluation, which this time around will come with fiscal reforms - unlike the March devaluation, which was just a change in the price of the currency.

"Bottom line, a devaluation will be good for the stock market."



WEDNESDAY'S HIGHLIGHTS



SAUDI ARABIA

* The index .TASI fell 0.8 percent to 6,080 points.

DUBAI

* The index .DFMGI edged down 0.3 percent to 3,504 points.



ABU DHABI

* The index .ADI dropped 0.5 percent to 4,471 points.



EGYPT

* The index .EGX30 rose 1.0 percent to 8,158 points.



QATAR

* The index .QSI retreated 2.9 percent to 10,990 points.



KUWAIT

* The index .KWSE slipped 0.03 percent to 5,420 points.



OMAN

* The index .MSI fell 0.6 percent to 5,735 points.



BAHRAIN

* The index .BAX added 0.3 percent to 1,142 points.

 (Editing by Andrew Torchia and David Holmes) ((celine.aswad@thomsonreuters.com; +971 4 4536886; Reuters Messaging: celine.aswad.thomsonreuters.com@reuters.net))