* Money flowing from rest of region to Saudi
* Dubai's Emaar gives up gains made on Aldar deal
* Air Arabia plunges as it goes ex-dividend
* Saudi Basic Industries, Saudi Telecom rise strongly
* But many small stocks soft, REITs are sluggish
By Katie Paul
DUBAI, March 22 (Reuters) - Major Gulf stock markets performed very differently on Thursday as Dubai closed at its lowest level in two years while Saudi Arabia continued to climb on optimism over its entry into emerging market indexes.
Money has been flowing from Dubai and other Gulf Arab markets into Saudi Arabia since the start of the year, as investors try to get in ahead of billions of dollars of passive foreign funds that are expected to pour into Riyadh after it gains emerging market status.
Dubai's index ended down 1.8 percent at 3,150 points in lacklustre turnover, dropping below a two-year low that it hit last week.
Emaar Properties, which had risen 2.2 percent on Wednesday after signing a joint venture agreement with Abu Dhabi's Aldar Properties to develop local and international projects, fell back 3.0 percent. The stock has been a victim of Dubai's weak property market in recent months.
Air Arabia plunged 9.3 percent as it went ex-dividend.
Meanwhile, the Saudi index rose 1.0 percent to its highest level since October 2015 on expectations that FTSE will decide at an end-March review to upgrade Riyadh to secondary emerging market status.
The biggest market movers included petrochemical firm Saudi Basic Industries Corp and Saudi Telecom, up 2.3 percent and 4.1 percent respectively - stocks that are expected to figure prominently in emerging market indexes.
"FTSE is the main catalyst driving investors into the market," said Marie Salem, director of capital markets at FFA Dubai.
Saudi exchange data released early this week showed foreign investors bought a net $367 million of stocks in the week through March 15, the highest weekly total on record.
Advancing Saudi stocks only narrowly outnumbered decliners by 100 to 79, and many smaller Saudi shares were disregarded by investors, including real estate investment trusts, which saw little activity.
Al Rajhi REIT, which has been sinking since it listed on Tuesday, fell a further 2.0 percent to 9.14 riyals. It raised 427 million riyals ($113.9 million) in its initial public offer by selling units at 10 riyals each.
The Abu Dhabi index edged up 0.2 percent, recovering after dropping in midday trade. Abu Dhabi Commercial Bank closed down 6.2 percent as it went ex-dividend.
Qatar's index was down 0.5 percent. Big movers United Development, which fell 5.8 percent, and Commercial Bank, which lost 1.8 percent, both went ex-dividend.
SAUDI ARABIA * The index rose 1.0 percent to 7,841 points. DUBAI * The index fell 1.8 percent to 3,150 points. ABU DHABI * The index rose 0.2 percent to 4,578 points. QATAR * The index fell 0.5 percent to 8,826 points. EGYPT * The index fell 0.5 percent to 17,065 points. KUWAIT * The index dropped 0.4 percent to 6,662 points. BAHRAIN * The index fell 0.2 percent to 1,334 points. OMAN * The index edged up 0.1 percent to 4,801 points. (Editing by Andrew Torchia Editing by Alison Williams)