Gulf stock markets edged higher on Sunday with Saudi Arabia rising in the final hour of trade as local traders bought back ahead of Monday's 2016 budget announcement. Egypt dropped in response to an interest rate hike.

The Saudi index closed 0.1 per cent higher at 6,946 points, rebounding from a low of 6,874 points because of rises in stocks which investors hope will be largely unaffected by the Saudi budget, due to be announced on Monday afternoon.

To narrow a huge deficit caused by low oil prices, the budget is expected to contain spending cuts, possibly including a rise in natural gas feedstock prices for petrochemical producers such as Saudi Basic Industries. The stock fell 0.6 per cent.

Other stocks seen as dependent on state spending also sold off. National Shipping Company (Bahri) slumped 7.4 per cent in active trade although the shipper's board proposed more than doubling its annual cash dividend for 2015 to 2.5 riyals per share.

"Bahri is a stock that is highly sensitive to the government's spending plans," said a Jeddah-based trader. "The stock is selling off because traders are sceptical of the transportation sector, despite the fact that the company's earnings were strong last quarter."

Some stocks seen as relatively immune to budget cuts were strong. National Commercial Bank edged up 0.5 per cent in thin trade; it recommended paying a dividend of 0.75 riyal for the second half of 2015, up from 0.65 riyal in the second half of last year.

Saudi Telecom (STC) rose 1.1 per cent after the kingdom's largest telecommunications operator offered to buy the shares in a Saudi-based sales services company, Sale Advanced Company, that it does not already own for SR400 million ($107 million).

It was STC's second announcement of an acquisition offer this quarter; it started buying shares of Kuwait's VIVA on Sunday.

"We believe STC's offer to acquire the remaining stake in VIVA Kuwait reflects the company's strategy to focus on high- growth markets," said a note by Riyadh-based NCB Capital.

Dubai's index rose 0.8 per cent, bringing its rebound from its December low to 10.8 per cent. The two largest companies by market value, Emaar Properties and Emirates NBD, carried the market higher, advancing 1.1 and 1.4 per cent respectively.

Abu Dhabi climbed 0.1 per cent for a seventh straight session of gains. Most banks rose, with National Bank of Abu Dhabi, the market's largest bank by value, advancing 1.8 per cent.

Qatar's market rose 0.4 per cent in modest volumes as international portfolio managers were largely absent because of the year-end holiday season. Gulf International Services jumped 2.6 per cent and was the bourse's most heavily traded stock.

Cairo's benchmark fell 0.9 per cent in low volumes after the central bank raised key interest rates by 50 basis points on Thursday, citing inflationary pressures. Arab and foreign investors were net sellers, bourse data showed.

The hike was a surprise to some investors and may add to concern about shaky economic growth. It will help to support the Egyptian pound, but many analysts think the pound is overvalued and will still have to be devalued at some stage.

Global Telecom and Commercial International Bank each dropped more than 2 per cent.-Reuters