* Egypt market breaks chart support at October low
* Some hope for rebound if "national salvation government" formed
* But currency fears, company earnings mean bounce would be brief
* Kuwait political turmoil may further disrupt policy-making
* But rising turnover at this week's low may be positive sign
By Maha Dahan and Nadia Saleem
CAIRO/DUBAI, Nov 23 (Reuters) - Political unrest is set to dominate stock markets in Egypt and Kuwait over the coming week, adding to the risks posed by unstable global financial markets.
Egypt's benchmark index plunged to its lowest levels in 32 months this week after days of street clashes between security pesonnel and anti-government protestors. The stock market suspended trade for an hour on Tuesday after the broader index fell more than 5 percent during the day.
The benchmark rebounded 17 percent from a low of 3,820 points in October because of cheap valuations and hopes that parliamentary elections starting next week would go smoothly. This week's tumble more than erased those gains, leaving the index down 48 percent this year. The index now has no chart support above 3,380 points, a multi-year low hit in February 2009.
"The unfolding political events are taking centre stage and clearly the sight of pitched battles in Tahrir square will again discourage investors from returning to the market," said Michael Millar, head of research at Naeem Holding.
Some analysts including Millar said the market might rebound if the ruling military council succeeded in appointing, as it has proposed, a "national salvation government" to replace Prime Minister Essam Sharaf's cabinet, which resigned this week but remains in a caretaker role.
"If the protests result in the appointment of a technocrat cabinet or committee, that could calm the situation and allow a temporary bounce," Millar said.
But he and others said any rebound was likely to be brief, because the market was worrying that a continued decline in Egypt's currency reserves could eventually lead to a big depreciation of the Egyptian pound, and because many third-quarter corporate earnings had been weaker than expected.
EFG-Hermes, Egypt's biggest investment bank, said last week that its third-quarter net profit tumbled 64 percent.
"Political stability, economic vision and macro-stability for industries are not there, so what will you trade on?" said Nader Khedr, an investment analyst.
Kuwait is not nearly as turbulent but unrest has exposed public dissatisfaction with politics. On Tuesday the public prosecutor ordered the Interior Ministry to arrest 45 people accused of involvement in the storming of the parliament building last week, during a protest demanding that Prime Minister Sheikh Nasser al-Mohammad al-Sabah step down over corruption allegations. He denies any wrongdoing.
The index fell 1 percent to 5,798 points this week, approaching a seven-year low of 5,746 points hit in August. Kuwait's economic policy-making has been plagued by disputes between parliament and the cabinet, which have delayed decisions on reforms and major investment projects, and the political turmoil could further distract the government.
"The political situation in Kuwait is pretty serious at the moment," said Nawaf Al Refaie, deputy chief executive at Ahli Capital Investment Co, adding that the market would need three or four years to stage any major recovery.
"Investors are now terrified by the recent unrest which affected the market, not just in terms of percentage loss but also in terms of valuations, volumes and overall liquidity."
Safaa Zbib, head of research at Kuwait and Middle East Financial Investment Co, said: "The last thing a market under pressure needs is political unrest.
"Volumes and liquidity are already very low, because of many other reasons -- mostly bad corporate results, continued losses, fears of the European crisis and fears of a global recession. The whole formula is not helping."
However, trading turnover rose as the index bounced from this week's intra-day low, a sign that some investors felt the market had strong technical support. Al Refaie said many investors were likely to hold onto their current positions for the time being, even though they would not add to their holdings, as companies were undervalued and still paying high dividend yields.