Saudi Arabia's one-year currency forwards fell to a one-month low on Monday, indicating bets the riyal will strengthen against the dollar, after the king announced new social handouts and as unrest in Bahrain calmed.

Saudi currency forwards had held near their highest levels since January 2009 in recent weeks, as regional unrest that had toppled autocratic leaders in Egypt and Tunisia and spread to nearby Bahrain, Oman and Yemen, made investors jittery.

The forwards fell to -25/-10 points on Monday, from Friday's close of 10/30 points, swinging into negative territory -- which implies expectations of a stronger currency -- for the first time since late February, traders said.

"Generally speaking the markets liquidity is taking over now coupled with the subsiding event risk, (and the) more quiet situation in Bahrain," said a Dubai-based trader.

The Saudi forwards, among the most liquid in the Gulf, now imply a 0.1 percent firming of the riyal from its 3.75 peg to the greenback over the next 12 months.

Revolts in the Arab world that also led to a bloody uprising in oil-producing Libya had increased debt insurance costs and pressured stock markets across the Gulf, the world's top crude exporting region, the stability of which is of global concern.

But Saudi King Abdullah's offer last week of new social handouts worth $93 billion, aimed at easing tensions in the Opec member, has boosted market confidence despite air strikes by Western powers on Libya.

"Everything looks to be improving. At the moment it (Libya) is disregarded and they (players) are focusing on events closer to home," said Lyndon Loos, head of forex trading for the Middle East and North Africa at Standard Chartered in Dubai.

"We might see a push a little bit lower from these levels, then obviously people will reassess the situation as things develop. But for the moment, we are definitely seeing some of the people, mainly Saudi names, hit the left-hand side quite aggressively," he said.

Saudi stocks extended gains on Monday after closing 4.5 per cent higher on Sunday, buoyed by the king's package, which amounts to nearly 30 per cent of economic output when combined with February handouts of $37 billion.

The Saudi central bank governor said on Sunday the economy was reasonably insulated from the regional strife and there have not been any noticeable or abnormal capital outflows. – Reuters