All seven Gulf markets advanced on Sunday, spurred by Saudi Arabia's surge the previous day as institutional buying swelled trading volumes.

Brokers said investors are increasingly optimistic and believe the likely effects of the credit crunch and global recession on the Gulf economies may have been exaggerated.

"A lot of clients are thinking they may have missed the bottom of the market and so we're seeing rising institutional flow coming in," says Matthew Wakeman, EFG-Hermes managing director for cash and equity linked trading.

This translated into significant gains across the region, with Dubai's index posting its biggest one-day rise for six weeks, while Kuwait enjoyed its best single-session performance since October 2008 as volumes hit a near two-year high.

Regional markets have been among the hardest hit during the global downturn, with the Dubai bourse down 72 per cent since the end of 2007, while the Saudi market has lost 56 per cent over the same period and the five other Gulf indices have each fallen by more than 40 per cent.

"The market will remain choppy - people will be taking a short term view and will very quickly turn to profit-taking," said Shahid Hameed, Global Investment House head of asset management for the Gulf Arab region.

"Typically, in bear markets people jump in when the market rallies because they don't want to miss out on a potential bull run and so trading tends to be very volatile."

Other brokers were similarly cautious and many expect Gulf markets to trade flat on Monday and mirror Saudi Arabia's performance so far this week, which saw the Tadawul jump 5.3 percent on Saturday, before adding a further 0.7 percent on Sunday.

This week's uptrend follows a broadly positive March, but traders voiced doubts whether this can be sustained, with first quarter results set to decide the markets' medium-term fate.

"If results are worse than expected then we could return to last week's uncertainty and low volumes," said Samer al-Jaouni, general manager of Middle East Financial Brokerage Company.

"Part of the current rise is speculation and part of it is because prices have fallen so low that institutions are building new positions after selling huge parts of their portfolios."

World stock markets rallied on Friday after the G20 agreed a new $1.1 trillion rescue package for the globe's ailing economies.-Reuters