DUBAI/LONDON: The Kuwaiti dinar fell against the U.S. dollar in the forward market on Tuesday and Kuwaiti stocks plunged, ahead of an official announcement that the ruling Emir Sheikh Sabah al-Ahmad al-Sabah had died.

Sheikh Sabah, 91, had ruled the oil-producing Gulf Arab country since 2006. His designated successor is his brother, Crown Prince Sheikh Nawaf al-Ahmad al-Sabah.

Kuwaiti stocks were hit hard on Tuesday with the benchmark premier index retreating 2.2%, its biggest intraday fall since April.

Three-month dollar/Kuwaiti dinar forwards jumped as high as 84 points, a nearly four-month high, according to Refinitiv data.

Kuwait's outstanding U.S. dollar-denominated bonds, however, were relatively stable.

"Succession should be relatively smooth with the Crown Prince, who has stood in for the Emir before, assuming office," said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

"The technicals are quite strong for Kuwaiti sovereign bonds - there are only two outstanding, of which one is short-dated which generally tends to mean lower volatility especially in a credit as strong as Kuwait," he said.

Kuwait, which has accumulated enormous wealth thanks to oil exports, is facing a liquidity squeeze this year as it struggles to pass a law allowing it to issue international debt.

Moody's Investor Service downgraded Kuwait last week by two notches to A1 from Aa2, citing higher liquidity risks and weaker governance and institutional strength. 

(Reporting by Davide Barbuscia and Tom Arnold Editing by Gareth Jones and Mark Heinrich) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))