MIDEAST STOCKS-Saudi drops on global outlook, insurance share probe

* Saudi regulator proves possible manipulation -traders

* Petrochem stocks continue slide

* Kuwait rises before Q1 earnings

* Air Arabia jumps 4.7 pct in Dubai

* Bank Muscat slides after fraud hits Q1 earnings

By Nadia Saleem and David French

DUBAI, April 17 (Reuters) - Saudi Arabia's bourse dropped for a fifth straight session as a further fall in oil prices and weak global markets weighed on shares. Insurance stocks slumped as the financial regulator probed possible market manipulation, according to traders.

Brent crude LCOc1 slid towards $99 per barrel on Wednesday because of the prospect of sluggish fuel demand in the United States and China, and rising stockpiles of U.S. crude.

This hurt petrochemical shares; Saudi Basic Industries Corp

2010.SE (SABIC) dropped 1.4 percent, dragging down the main index .TASI , which was 0.5 percent lower on Wednesday.

The insurance sector's index .SINSI sank 5.2 percent after the Capital Market Authority launched a probe into potential market manipulation by some investors, traders said. Insurance stocks are a favourite target of shorter-term speculation; there was no immediate comment from the CMA.

"A CMA inspection into illegal trading caused a deep correction in speculative stocks," said Mohammad Omran, an independent financial analyst based in Riyadh. "The inspection rang a bell that there is a watchdog."

In Kuwait, the measure .KWSE rose 0.6 percent to 7,086 points, a fresh 29-month high, as investors increased positions ahead of first-quarter earnings.

The market resumed gains after a dip earlier this week when a prominent Kuwaiti opposition politician was sentenced to five years in jail for insulting the emir. ID:nL5N0D219Y

"The market is oblivious to political instability and this is adding to the favourable sentiment, which should propel the market further towards the 7,500 level that many thought unattainable," said Fouad Darwish, head of brokerage at Global Investment House.

National Bank of Kuwait NBKK.KW , which reported flat net profit for the first quarter after the market closed but said its operating environment was improving, fell 1.1 percent.

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In Dubai, the index .DFMGI snapped a three-session losing run, gaining 0.1 percent, as bargain-hunters returned ahead of first-quarter numbers. The market was led by budget carrier Air Arabia AIRA.DU , which jumped 4.7 percent - its biggest one-day hike since February 2012.

"What has surprised some of us is that there has been an increase in volumes earlier than thought - usually people price in Q1 earnings towards the end of April," said an Abu Dhabi-based trader who asked not to be identified.

Investors are betting on strong earnings growth, not just for the first quarter but for the year ahead, he added. Most United Arab Emirates companies have yet to report their quarterly numbers.

Oman's bourse .MSI dipped 0.1 percent as heavyweight Bank Muscat BMAO.OM slumped 1.1 percent after posting a 25 percent drop in first-quarter earnings. The bank was forced to take a one-off 15 million rial ($39 million) provision after suffering card fraud in February. ID:nL5N0D40LM

Qatar's exchange .QSI gained 0.5 percent, aided by gains in heavyweights Qatar National Bank QNBK.QA and Industries Qatar IQCD.QA , which rose 0.7 and 2.0 percent.

WEDNESDAY'S HIGHLIGHTS

SAUDI ARABIA

* The index .TASI fell 0.5 percent to 7,060 points.

KUWAIT

* The measure .KWSE climbed 0.6 percent to 7,086 points.

DUBAI

* The index .DFMGI gained 0.1 percent to 1,970 points.

ABU DHABI

* The index .ADI declined 0.1 percent to 3,091 points.

EGYPT

* The measure .EGX30 fell 0.7 percent to 5,259 points.

OMAN