* Kurdistan deal gives Dana immediate cash infusion
* Allows it to develop production there in long run
* Unclear if it has any implications for Dana's sukuk
* Dubai index ends well off lows, volume rises
* Markets elsewhere in Gulf, Egypt closed for Eid
By Andrew Torchia
DUBAI, Sept 4 (Reuters) - Stock markets in the United Arab Emirates were mostly quiet on Monday as they resumed trading after a long holiday weekend for Eid al-Adha, but Abu Dhabi-listed Dana Gas soared after it agreed on overdue payments from Iraqi Kurdistan's government.
Dana jumped 14.1 percent to 0.73 dirham, its highest level since early July, and was by far the market's most heavily traded stock, accounting for over half of the day's volume in Abu Dhabi.
Iraqi Kurdistan agreed to immediately pay Dana's gas production consortium $1 billion, including $400 million that will be used for investment in the region; Dana will receive 35 percent of the money.
In addition, $1.24 billion will be reclassified from debt owed by the government to outstanding costs to be recovered by the consortium from future revenues.
"Overall, we view this as a major positive development for Dana Gas," said Allen Sandeep, head of research at Cairo-based Naeem Brokerage, predicting the firm's credit rating would leap.
The price of Dana's convertible sukuk due on Oct. 31 climbed to 77.92 cents on the dollar bid after the Kurdistan deal was announced late on Wednesday from 72.88.
The Kurdistan payment will boost Dana's cash balance, which was $337 million at the end of June. It is not clear that it will make any difference to the dispute over the company's $700 million of outstanding sukuk, which Dana is refusing to repay on the grounds that they have become invalid.
The company, which is fighting its case in courts in London and the UAE, declined to comment on whether the Kurdistan deal might affect the case in any way.
But Sandeep said the main benefit of the deal for Dana was that it would allow the consortium to expand its production at the huge Khor Mor and Chemchemal fields. Initial indications are that gas production at Khor Mor will rise by 160 percent to 500 million cubic feet per day in two years, he said.
Other Abu Dhabi stocks were much more subdued, with the index rising only 0.3 percent.
In Dubai, the index slipped 0.1 percent but it closed well off the day's lows and trading volume rose, which were positive technical signs.
DAMAC Properties dropped back 1.5 percent but the most heavily traded stock, builder Drake & Scull, added 1.3 percent.
Stock markets elsewhere in the Gulf and in Egypt remained closed for Eid and will reopen later this week.
* The index edged down 0.1 percent to 3,635 points.
* The index rose 0.3 percent to 4,481 points. (Additional reporting by Celine Aswad; Editing by Catherine Evans)