DUBAI- Middle Eastern stock markets far underperformed the rest of the world in 2017 but as the year ended, beaten-down valuations for shares and plans for higher government spending gave investors reason to expect a better 2018.

Egypt's stock index .EGX30 surged 21.7 percent in 2017 as economic reforms bore fruit, but the picture in the Gulf was little short of disastrous because of geopolitical tensions, sluggish economic growth and sagging real estate prices.

Saudi Arabia's index .TASI edged up just 0.2 percent during the year compared to a 34 percent leap for MSCI's emerging markets index .MSCIEF . Among other major Gulf markets, Dubai .DFMGI fell 4.6 percent and Qatar .QSI , hit by a boycott imposed by other Arab states, lost 18.3 percent.

The new year looks unlikely to be as poor in the Gulf, however, partly because many share valuations have been beaten down to stand in line with, or even below, other emerging markets.

Also, a rise of oil prices in the last few months has let Gulf Cooperation Council governments slow austerity drives that have slashed economic growth and damaged corporate earnings. Growth is widely projected to pick up moderately in 2018.

"With this backdrop and underpinned by undemanding valuations, we are generally optimistic on the GCC for the year 2018, with the outlook ranging from slightly negative to moderately bullish across the board," said Bader al-Ghanim, head of GCC asset management at Kuwait's Global Investment House.

A Reuters poll of 13 leading Middle Eastern asset managers, released on Sunday, found 54 percent expect to raise allocations to regional equities over the next three months and none to cut them, the most positive balance since August urn:newsml:reuters.com:*:nL8N1OR1L6 .

Saudi Arabia's index .TASI edged down 0.1 percent on Sunday as real estate developer Dar Al Arkan 4300.SE , the most heavily traded stock, sank 5.0 percent despite saying it would offer 30 percent of Dar Al Arkan Properties, a property management firm with assets of 2.68 billion riyals ($715 million), to the public. It did not specify a date.

The stock had more than doubled in the past three months, partly in anticipation of the IPO.

National Commercial Bank 1180.SE , the biggest bank, climbed 2.7 percent in active trade. Its board proposed increasing the bank's capital by 10 billion riyals to 30 billion riyals by issuing bonus shares funded from retained earnings. urn:newsml:reuters.com:*:nL8N1OV02H

Qatar's index .QSI edged down 0.03 percent on Sunday as the biggest lender, Qatar National Bank QNBK.QA , slipped 0.8 per cent.

The year's final day of trade for markets in Dubai, Abu Dhabi and Kuwait was Thursday.



HIGHLIGHTS



SAUDI ARABIA



* The index .TASI edged down 0.1 percent to 7,226 points.



QATAR



* The index .QSI edged down 0.03 percent to 8,523 points.



EGYPT



* The index .EGX30 edged up 0.01 percent to 15,019 points.



BAHRAIN



* The index .BAX surged 2.0 percent to 1,332 points.



OMAN

* The index .MSI added 1.0 percent to 5,099 points.

(Editing by Larry King) ((andrew.torchia@thomsonreuters.com)(+9715 6681 7277)(Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))