BEIRUT, Lebanojn - Beirut stocks surged to record highs, closing above 1,269 points as petrodollars poured in from the booming Arab Gulf whose own markets are losing steam after a long bull run.

Lebanon's largest company and market mainstay, Solidere, rose more than 5 per cent today to close around $19 a share for the first time.

That price was a far cry from its level under $6 after the killing of former prime minister and Solidere founder Rafik Al Hariri in February plunged Lebanon into months of political turmoil. It also breaks the previous record of $17 set in the mid-1990s.

'Lots of Arabs are buying in Beirut,' said a senior trader at Beirut's Financial Funds Advisors.

'After what happened in the Gulf, where the markets were very high, they found Lebanon was undervalued. Prices were very low here. They have a lot of oil cash.'

Traders say valuations of Lebanese shares are looking increasingly attractive compared to the Gulf, where soaring oil revenues, high investor liquidity and strong corporate results have driven once illiquid stock markets to record highs.

Momentum in those markets has begun to taper off this month as earnings growth slows and investors look for better value elsewhere. Analysts see that trend continuing in 2006.

Lebanese banks, strong performers on Beirut's small bourse, are trading at price-to-earnings ratios of 15-16, traders say, around half the rates on Gulf markets, despite record demand.

Shares in Lebanon's top bank, BLOM, have surged around 150 per cent this year to reach around $68. Shares in Bank Audi, the country's second biggest bank, have risen from lows of $23.5 in January to around $59.

Those increases have driven the benchmark BLOM Stock Index to 1,269 points, breaking its previous record of 1,244.38 in 1997.

Activity on the bourse, on which 20 securities are listed, began to increase last year, after hitting the doldrums in the late 1990s when stagnant growth, spiralling government debt and stalled economic reforms kept investors away.

Market capitalisation reached $3.5 billion this year, twice its 2001 level. The daily average value of trade increased from $220,000 in 2001 to around $3 million this year, at least partly on the back of the oil boom in the Gulf.

'Some valuations are already too high in Beirut but others are not. I think this can go on for two or three more months at least,' said the FFA trader.

'BLOM could still rise 15-20 per cent. We expect Solidere to reach $20 or $21. More than that would be too much, but the market is small so a few million dollars can drive it up.'

Investment bank EFG-Hermes assigned a long- and short-term rating of 'buy' on Solidere on Friday, citing Gulf investors' confidence in Lebanon's future, despite bombings and killings that have plagued the country this year, plunging it into a series of political crises.

'Following the assassination of ... Hariri, the political situation has taken a surprisingly positive twist, albeit through a tough and painful change process,' it said.

'We expect Solidere to post strong growth in revenues and earnings on the back of higher land sales, price appreciation and an increase in leased areas and real estate sales.'

Solidere, which has a virtual monopoly on properties in downtown Beirut that it rebuilt from the ruins of the 1975-1990 civil war, nearly doubled its third-quarter net profit year-on-year to reach $23 million. (Reuters)