* Saudi blue chips seen expensive after rally
* Al Rajhi drops 1.9 pct after Q1 results in line, recent surge
* DSI cut sharp early losses after shareholder's assurance
* Emaar defies weak Dubai market on strong earnings
By Saeed Azhar
DUBAI, May 1 (Reuters) - Saudi stocks slid 0.6 percent on Tuesday as concerns grew about rich valuations for blue-chip stocks after the region's biggest stock market hit a more than a two-year high last week.
Most Gulf markets were lower with Dubai and Qatar both falling more than 1 percent.
Al Rajhi Bank dropped 1.9 percent despite reporting a 7.3 percent rise in first-quarter net profit on Tuesday, marking the ninth quarter of earnings growth in a row.
The profit was in line with analysts' forecasts, but gave little incentive for investors to buy more after the stock's surge this year. It has gained nearly 28 percent.
Property firm Dar Al Arkan Real Estate, a favourite stock among retail investors, dropped 3 percent.
The Saudi benchmark index has eased after surging past the 8,300-point level last week to its highest level since August 2015. On Tuesday, it closed at 8,158 points.
Foreign funds were net sellers last week, taking profits after the market's run-up this year ahead of FTSE Russell's decision to upgrade Riyadh to emerging market status, said Faisal Potrik, head of research at Riyad Capital.
With two weeks to Ramadan, market activity is likely to slow down, he said, but he expects buying interest will return ahead of index compiler MSCI's decision in June on whether to upgrade Saudi Arabia to emerging market.
In the week through last Thursday foreigners were net sellers to the tune of $48 million, stock exchange data showed.
Vrajesh Bhandari, a portfolio manager at Al Mal Capital in Dubai, said he expects more downside for the market as it consolidates the year-to-date gains. The index is still up nearly 13 percent this year.
"Purely on fundamentals, we don't see a lot of value in large caps – our thesis can change if we see top corporates delivering earnings growth, either by way of stimulating demand through lower prices or cutting costs aggressively," he said.
Dubai stocks fell 1.2 percent, hurt by selling in DAMAC Properties which tumbled 6.9 percent, while contractor Drake and Scull (DSI) fell 3.3 percent on news that it did not get approval to increase its capital via a new strategic partner.
DSI had plunged nearly 10 percent earlier, hitting an all-time intraday low of 1.10 dirhams. However, it erased some of its losses after an announcement by Abu Dhabi investor Tabarak that it has not sold any shares in the company and reassured on its long-term commitment. Tabarak owns 5.5 percent of DSI.
Emaar Properties bucked the market, rising 0.7 percent after reporting an 8.5 percent increase in net profit on Tuesday on the back of strong contributions from its shopping malls business despite a weaker property market.
In Qatar, Vodafone Qatar rose more than 1.6 percent in early trade, but quickly gave up most of its gains due to retail selling in the Qatar market. It was down 1.8 percent at the close.
The company recorded a net profit of 17.5 million riyals ($4.8 million) for the first quarter, its first ever quarterly profit and rebounding from a net loss of 74.2 million in the first quarter of 2017.
Qatari stocks were down 1.1 percent, weighed down by financials. Qatar National Bank dropped 1.2 percent.
Property firm Ezdan Holding plunged 6.9 percent after it reported a sharp drop in net profit a day earlier.
The company reported a first-quarter profit of 103 million riyals ($28.30 million), compared to 946 million riyals a year earlier, largely due to the sale of investment funds by some of its group subsidiaries.
($1 = 3.6728 UAE dirham)
* The index shed 0.6 percent to 8,158 points.
* The index fell 1.2 percent to 3,031 points.
* The index was flat to 4,673 points.
* The index dropped 1.1 percent to 9,014 points.
* The index was flat at 4,781 points.
* Market closed due to public holiday
* The index was flat at 4,731 points.
* Market closed due to public holiday
$1 = 3.6730 UAE dirham $1 = 3.6408 Qatar riyals Editing by Susan Fenton