By Briony Hale BBC News Online business reporter

Gulf investors are shying away from US stock markets and targeting the European property market instead.

It is against Islamic law to borrow or lend at a rate of interest, preventing practising Muslims from investing in property through conventional western mortgages.

But the European property market is looking increasingly attractive to Gulf investors seeking an alternative to suffering stock markets.

The appetite for UK-European investment is very strong in the Gulf

Ahmed Al Qattan GFH partner

Islamic investors are now getting the chance to invest in commercial properties in France and the UK through a special fund that is compliant with Sharia law.

The Bahraini investment bank, Gulf Finance House (GFH), has set up a UK fund with purchasing power of more than �200m ($313m), and is set to announce the creation of a French fund shortly.

"The appetite for UK-European investment is very strong in the Gulf in the current climate of uncertainty over US stocks, which is why we were so successful in raising the equity fund in a matter of weeks," said Ahmed Al Qattan, a partner at the bank.

Carefully selected tenants

Last month, the UK fund made its first acquisition, snapping up a �41.7m property in the Gatwick business park, a property it will now lease to BT for 15 years.

Esam Janahi hopes for more deals

The terms of the deal are complex, but GFH says it has found a structure which is tax efficient, meets the security requirements of the UK lender and is suitable for Islamic investors.

The deal is carried out under a concept known as Ijara, which allows an Islamic bank to purchase an asset and lease it to a client.

The tenants are vetted to make sure they do not conduct any offending business such as selling alcohol, weapons, tobacco or gambling.

Esam Janahi, chief executive of GFH said he hoped the deal would be the first of many.

It was financed through Nationwide Building Society, in its first foray into Islamic finance.

Money on the move

Nationwide said the deal had been a learning process but hoped it would help the building society to expand further in this area.

1,200 BT staff will work at the Gatwick property

Islamic fund management was boosted by a fatwa, or religious ruling, in the mid-1990s that declared investment in equities did not violate Sharia principles.

But falling stock markets have left investors wondering where to turn.

The latest figures suggest that the coffers of many Gulf banks are swelling with money brought home following the 11 September attacks last year.

The rise of the euro as a major force in world currency markets has also contributed to the shift of funds from the US into Europe.