DUBAI, March 26 (Reuters) - Stock markets in the Gulf were mixed in early trade on Sunday with Saudi Arabia outperforming after its exchange announced progress on reforms that could help it join MSCI's emerging market index.

The Saudi index rose 0.4 percent in the first hour with much activity focusing on smaller stocks such as Filing and Packing Materials Manufacturing Co 2180.SE , up 7.1 percent. Arab Bank dropped 2.5 percent as it went ex-dividend.

The exchange said late on Thursday that it would extend the period for settling trades and introduce short-selling on April 23, reforms demanded by MSCI. The reforms had already been expected sometime in the second quarter but the date is positive as it will give MSCI time to evaluate their impact before deciding in June whether to put Riyadh on its review list.

In Dubai, the index was almost flat in a very narrow range, although Union Properties jumped 3.9 percent after its board recommended an 8 percent stock dividend for 2016.

Emaar Malls EMAA.DU dropped 0.8 percent after local business magazine Arabian Business quoted sources as saying it was bidding up to $800 million to acquire Souq.com, apparently engaging in a bidding war with Amazon.com, which has agreed in principle to buy the online retailer. Emaar Malls did not respond to requests for comment.

Abu Dhabi fell 0.9 percent, pulled down by weakness in the big banks, with National Bank of Abu Dhabi losing 1.9 percent. Qatar's index edged up 0.2 percent.

(Reporting by Andrew Torchia; Editing by Elaine Hardcastle) ((andrew.torchia@thomsonreuters.com)(+9715 6681 7277)(Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))