Leighton Holdings, Australia's largest contractor and project developer, said it will pay about A$870 million ($707 million) for a 45 per cent stake in Dubai-based Al Habtoor Engineering as it expands in the Gulf market.

Shares in Leighton, about 54 per cent owned by German construction group Hochtief, jumped as much as 11 per cent following the news to hit a record high of A$48.50.

Al Habtoor is one of the Middle East's biggest engineering firms and one of the builders of Dubai's sail-shaped Burj Al Arab -- the world's tallest hotel.

Leighton said the deal would be accretive to earnings per share in the 2007/08 business year.

Analysts said the move was a good one for Leighton, allowing it access to a growing market with low risk.

"A lot of the risk of expanding into the region is taken out by the nature of this acquisition, and the impact on Leighton's profit line is substantial," said Shaw Stockbroking analyst Brent Mitchell.

"Al Habtoor has all the relationships with all the major players, construction firms, and royal families in the various emirates, so that gives them (Leighton) a good entree."

Leighton had previously flagged a tie-up with Al Habtoor. Chief executive Wal King had said in June that the Leighton group expected to significantly increase its exposure in the lucrative Gulf construction market in coming months.

It is already building a A$518 million equestrian centre in Qatar and is part of the A$1 billion-plus City of Arabia project in Dubai. Leighton won its largest contract to date in the Gulf on August 14 with a $550 million highway contract in Abu Dhabi, the capital of the UAE.

Leighton International managing director David Savage said in August that the unit expects to double its share of the business of its parent by 2010.

Leighton shares were trading up 6.5 percent at A$46.70 by 0500 GMT, against a broader market up 0.2 per cent.

Under the cash and debt funded deal, Leighton International, the company's Southeast Asia, India and Gulf subsidiary, will merge its operations with Al Habtoor. The combined entity will have a total of A$4.4 billion of work in hand.

Leighton said the deal would be funded by A$350 million in cash and A$520 million in non-recourse debt, with the debt funding provided by Abu Dhabi Commercial Bank, EFIC, HSBC, Mashreqbank and the Royal Bank of Scotland.

Leighton also said on Monday that it planned to move the headquarters of Leighton International from Kuala Lumpur to Dubai as part of the increased Gulf focus.

Al Habtoor Engineering was established in Dubai in 1970 and has more than 25,000 employees. It is part of the Al Habtoor Group, a privately owned conglomerate that also has interests in hotels, real estate, publishing and luxury cars.

Its chairman, Khalaf Al Habtoor, is ranked by Forbes as the world's 369th billionaire, with a net worth of some $2.5 billion.

Links between Leighton and Al Habtoor go back to 1986, when the two won a contract for student housing construction at Arabian Gulf University. Reuters