Stock markets fell the most in two months on Thursday as a global sell-off was made worse by a host of quarterly profit declines across the key banking and construction sectors.

The gloom lifted late in the day when the US reported surprisingly strong 3.5 per cent growth in the third quarter, the first positive quarter in more than a year. But many economists still doubted the resilience of recent gains in global asset prices as stimulus spending subsides.

“What bothers me is that global markets are quite heavily overextended, and if there is a correction the spillover could affect this region,” said Fahd Iqbal, the vice president of research at EFG-Hermes.

Stocks in Dubai and Abu Dhabi fell after US markets closed sharply lower on Wednesday followed by Asian markets, after weak earnings reports.

“Investors have been pricing in a recovery in the Middle East, so the slightest negative news becomes an excuse for profit taking,” said Lee Yong Wei, the senior fund manager at EIS Asset Management.

“After the recent run-up it should not come as a surprise that some investors would want to book in some profits.”

The Dubai Financial Market (DFM) General Index fell 3.9 per cent, while the Abu Dhabi Securities Exchange General Index declined 2.4 per cent, the biggest drops seen on both bourses since August 17.

Mr Iqbal said he still expected Middle-Eastern markets to recover as the regional outlook was stronger than in the West.

Equity markets across the world have rallied in recent weeks but the gains have been most pronounced in emerging markets.

The MSCI Emerging Market Index, which tracks shares in developing markets, has surged 60 per cent this year, in what would mark its biggest annual gain since 1993. Last year the index closed down 54 per cent in its worst performance on record. Emerging markets make up the top 10 performers globally.

But one Morgan Stanley fund manager said he expected the global stock market rally to be extinguished as government spending slowed.

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