Unrest hurts trade in 'business-friendly' Bahrain

[March 17, 2011]  DUBAI, United Arab Emirates (AP) -- Bahrain's stock exchange and a few bank branches reopened Thursday, but business remained far from normal a day after soldiers and riot police overran an anti-government protest camp in the Gulf island kingdom.

Shops and malls stayed shut in much of the capital, Manama. Soldiers, some backed by armored personnel carriers and tanks, were seen stationed throughout the city's government and commercial districts downtown, including outside the Bahrain Financial Harbor, an office complex that stands testament to the tiny nation's role as a regional banking hub.

Two international banks, HSBC and Standard Chartered, resumed only a fraction of their normal operations. All of their Bahrain branches were shut Wednesday as security forces cracked down on protesters and imposed overnight curfews under newly granted martial law-style powers.

Gulf Air, the country's national carrier, closed ticket offices outside the airport and canceled all flights to Iran and Iraq, according to a company statement. It didn't say why flights to only those two countries were affected. A spokeswoman cited "operational reasons" as the cause of the cancelations.

Both Iran and Iraq, like Bahrain, have majority Shiite populations. Other Mideast countries that Gulf Air serves are mostly Sunni.

Flights to Iraq are scheduled to resume Friday, and those to Iran on Monday. Gulf Air said all other flights are operating as normal.

The struggle inside Bahrain appears increasingly to be framed along sectarian lines, with the country's Sunni monarchy and its backers attempting to retain power and maintain order, and a Shiite-led opposition calling for sweeping political reforms. Troops from Bahrain's Gulf allies, led by Saudi Arabia, began arriving earlier this week to bolster the country's efforts to restore security.

The unrest is doing serious damage to Bahrain's image. The kingdom has also tried hard to position itself as an attractive investment destination and Middle East banking center. Even the passport stamps issued to incoming visitors declare the kingdom as "Business-friendly Bahrain."

Bahrain's stock exchange reopened Thursday after shutting its doors the previous day. Shares followed other regional markets higher early on, but gave up most of their gains to close up a tenth of a percentage point.

HSBC reopened one of its four branches Thursday, in the upscale Adliya district. Standard Chartered said it reopened two of its seven branches, in Muharraq and Riffa, and its head office in the country. All the banks' branches were closed Wednesday.

Both banks said their staff are safe and that they are closely monitoring the situation. HSBC said its ATMs are stocked and functioning normally.

Credit rating firm Moody's Investors Service warned that Bahrain's creditworthiness could be hurt by the ongoing unrest, and that the arrival of Gulf troops this week increase tensions throughout the region.

"We believe that there is a substantial risk that the medium-term credit fundamentals of Bahrain will be impaired by the present crisis, which seems unlikely to be resolved in the near future," Moody's analyst Tristan Cooper said.

Another credit agency Fitch Ratings, earlier this week cut its ratings on Bahrain and its sovereign wealth fund by two notches because of concerns about the deteriorating political situation in the country.

[Associated Press; By ADAM SCHRECK]

Barbara Surk in Manama contributed reporting.

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