National Commercial Bank, Saudi Arabia's largest lender by assets, said it expects a recovery in the Saudi stock market to strengthen on relatively cheap share prices and higher demand from investors.

"We are still in favour of our bullish stance," the bank said in a note. "The market still has upside potential." Shares are trading at an average 15.12 times earnings, giving a 6.6 per cent dividend yield, the bank said, without being more specific about the measures.

Saudi Arabia's main stock index Sasi has jumped almost 37 per cent since touching a near three-year low in June.

In 2006 the benchmark was the worst performer among 82 tracked by US stock market research company Birinyi Associates, losing more than half its value.

"Ongoing structural and financial sector reforms are expected to increase capital flows to the stock market," the bank said. It did not give a target forecast for the index. - Reuters