Saudi Arabia's stock market fell sharply in early trade on Tuesday after a 2016 state budget, announced late on Monday, that included spending cuts, rises in fuel, gas feedstock and electricity prices, and tax rises.

The index dropped 3 percent in the opening 15 minutes of trade with petrochemical firms particularly hard hit, as their margins will be squeezed by more costly feedstock.

Saudi Basic Industries, the biggest petrochemical producer, tumbled 8.3 percent while Saudi Kayan lost 4.8 percent. Methane was raised to $1.25 per million British thermal units and ethane to $1.75, from 75 US cents for both.

"Saudi petchem producers have lost the cost advantage, and they cannot pass on this cost in their prices to end-users because that is determined by market forces of demand and supply," said Iyad Ghulam, analyst at NCB Capital.

He added, however, that the companies would be able to absorb some of the cost hikes because their operating margins were large, so they would not necessarily post losses in 2016.

Construction firms are also expected to be hurt by spending cuts in the budget. Abdullah Abdul Mohsin Al-Khodari Sons slid 4.3 percent.

Utility Saudi Electricity Co rose 0.9 percent because the budget included electricity price hikes. But the stock had already jumped 9.9 percent on Monday in anticipation of such a measure, and the company said on Tuesday that it foresaw little impact on its bottom line as higher electricity prices would be offset by higher fuel costs.

Analysts said they saw positives in the budget announcement; the 2015 deficit of 367 billion riyals ($97.9 billion) was lower than the 400-450 billion riyals which many investors had feared, and the planned cut in 2016 spending was smaller.

Nevertheless, many stocks were sold indiscriminately on Tuesday morning, with Al Rajhi Bank losing 3.8 percent. - Reuters