Middle East telecoms take centre stage in the coming week as a consolidation phase looks set to begin, but weak third-quarter earnings from major Gulf banks could be a drag on stocks.

A rare merger and acquisition (M&A) play, which followed a flurry of debt issuances in late September, and talk of at least two upcoming initial public offerings, has buoyed investor hopes that the region's dormant mergers and acquisitions market is returning to life.

The focus is on telecoms, where Emirates Telecommunication Corp, the Gulf's second largest operator, unveiled in late September a $12 billion bid to buy 46 per cent of Kuwait's Zain, the No. 3 Gulf telecoms firm.

That deal is expected to result in the sale of Zain's Saudi unit, a juicy target for those eyeing the Gulf's largest market.

In Egypt, Orascom Telecom plans to merge its assets with Russia's Vimpelcom, though it is not clear if this will end a row with Algiers over Orascom's Algerian Djezzy unit.

'Clearly, companies with low-cost positions and the ability to leverage their balance sheets will be the main beneficiaries of this consolidation,' said Rami Sidani, head of investments at Schroders Middle East.

'The next question is around Orascom Telecom we're waiting to see if it's going to be acquired by another operator or if it will remain the same or be dismantled.'

One major telecommunications deal is already in the bag -- France Telecom's acquisition of a 40-per cent stake in Morocco's Meditel. Meanwhile, a new license is up for grabs in the relatively less saturated Syrian market, so investor appetite for all things telecom could hit a high in coming weeks.

Markets will also get a slew of earnings as the third quarter reporting period begins in the Middle East with mixed results expected from Saudi Arabia and Qatar, which start off the season.

'There is a relatively low expectation for the forthcoming results season for Saudi,' Paul Cooper, managing director at Sarasin-Alpen and Partners said. 'I suspect the trend will be relatively similar across the region.'

Gulf markets have gradually recovered from the shock of the Dubai debt crisis in November and Saudi banks largely reported a rise in earnings last quarter.

However, Gulf central banks are watching capital levels at banks very closely as many lenders had to repeatedly book provisions against bad loans after the collapse of Lehman Brothers in late 2008 froze debt markets and hit stocks.

'Certainly, the banking sector will be faced with provisioning, particularly in the United Arab Emirates, with the Dubai World restructuring process. The numbers may well be disappointing in the banking sector,' Cooper added.

'Investors may look at this as being the high point in terms of provisions and, however, look to buy on anticipation of better news ahead.'

Regional stocks, particularly petrochemicals stocks in the world's biggest oil exporter, Saudi Arabia, could also continue to track the rally in global commodities prices if these are sustained.

With interest rates still at record lows, the global hunt for yields has kept the spotlight trained on emerging markets.

Investors were quick to mop up a slew of bond issues in recent weeks, including Dubai's first foray into debt markets since its credit crisis in November, as well as a 10-year sovereign bond from Morocco.

Dubai's flagship conglomerate reached a deal last month to restructure nearly $25 billion in debt, easing some worries about the Gulf Arab emirate's debt burden.

More corporates are expected to tap debt markets in the coming weeks, on the heels of major Gulf companies such as Emaar Properties and Qatar Telecom.

'We've been seeing the liquidity coming to our market, the credit lines and the accessibility for regional corporates to raise money is once again available,' Sidani added.

'That means more financing and it will support any expansionary plans for regional companies.'-Reuters