May 11 (Reuters) - Most Gulf stock markets closed lower on Monday amid signs that talks between the United States and Iran were faltering, leaving the Strait of Hormuz effectively closed.

US President Donald Trump on Sunday rejected Iran's response to Washington's proposal for peace talks to end the war, describing Tehran's demands as "totally unacceptable".

Iranian media reported that Tehran's proposal included a complete end to the war, the lifting of sanctions, the payment of compensation, and recognition of its control over the Strait.

Iran has effectively closed the strait since the start of the war on February 28, disrupting a vital waterway that normally carried about a fifth of the world's oil and gas supplies before the war.

Dubai's index fell 1.4 percent, weighed down by a 1.8 percent drop in Emaar Properties shares and a 1.7 percent decline in Salik, the highway toll collection service. Air Arabia shares also fell 2.1 percent.

Joseph Daherieh, managing director at Techmill, said that the stalled talks between the United States and Iran are making investors cautious and could negatively affect stocks despite a slight rise in sentiment due to the relative calm.

The Abu Dhabi index fell 0.5 percent, with Aldar Properties shares dropping 2.3 percent.

The UAE Ministry of Defense said its air defenses intercepted two drones coming from Iran on Sunday, in the latest in a series of renewed attacks on the oil-rich Gulf state.

The Saudi index rose 0.4 percent, driven by an eight percent jump in ACWA Power shares after the company announced higher first-quarter revenues despite lower profits.

Saudi Aramco's oil stock rose 0.8 percent after the company announced yesterday that first-quarter profits jumped 25 percent as the East-West pipeline was operating at full capacity to offset disruptions related to the Strait of Hormuz.

The Qatari index fell 0.3 percent.

The Bahraini and Omani indices each fell 0.2 percent, and the Kuwaiti index also declined by 0.5 percent.

The Qatari Ministry of Defense said that a commercial cargo ship coming from Abu Dhabi was targeted yesterday, Sunday, by a drone in the country’s territorial waters northeast of Mesaieed port, resulting in a small fire on the ship that was quickly brought under control.

Outside the Gulf region, Egypt's blue-chip index fell 0.3 percent.