** Shares in Saudi Arabia's Alawwal Bank are up 5.6 pct to 14.70 riyals in early trade with heavy volumes, after jumping 10 percent on Wednesday; HSBC-backed Saudi British Bank falls 1.5 pct to 31.50 riyals, extending losses for the second day in a row
** The two lenders said they reached preliminary, non-binding agreement to merge in deal that would create Saudi Arabia's third-biggest bank with assets of around $77 billion
** Deal would value each Alawwal share at 16.3 dirhams, SABB says
** Other Saudi bank shares mixed; Saudi Arabia's biggest lender National Commercial Bank was flat to down, while Alnima Bank edged up 0.2 percent in early trade
** Saudi stock index was flat in early trading.
(Reporting By Aziz El Yaakoubi; Editing by Saeed Azhar and Kevin Liffey) ((firstname.lastname@example.org; +971552994086);))