Major stock markets in the Gulf tumbled on Sunday amid worries that rising conflict between Palestinian group Hamas and Israel threatens to spiral.

Israel pounded Gaza on Sunday after suffering its bloodiest attack in decades when Hamas fighters rampaged through Israeli towns a day earlier, threatening a major new war in the Middle East.

Saudi Arabia's benchmark index slumped 1.6%, the sharpest decline in 10 months. The index was dragged down by losses in all sectors, with Lumi Rental down 5% and Etihad Atheeb Telecommunication dropping 5.3%.

Saudi Aramco Base Oil (Luberef)dropped 6.8% and the world's largest Islamic bank by assets, Al Rajhi Bank slipped 2.1%.

The Qatari index fell for a third straight session, ending 0.6% lower, with most sectors in the red. Industries Qatar dropped 1.1% and Commercial Bank lost 1.2%.

Outside the Gulf, Egypt's blue-chip index plunged 2.6%, the steepest drop in nearly three months.

The index was weighed down by losses in all sectors with Commercial International Bank falling 2.7% and E-Finance For Digital And Financial Investments sliding 4.8%. Among the losers, Telecom Egypt and Fawry Banking lost 4.2% and 4.7% respectively.

SAUDI ARABIA dropped 1.6% to 10,596 QATAR lost 0.6% to 10,001 EGYPT fell 2.6% to 19,357 BAHRAIN lost 0.1% to 1,949 OMAN added 0.1% to 4,742 KUWAIT lost 0.7% to 7,353 (Reporting by Md Manzer Hussain Editing by Bernadette Baum)