Dubai's bourse made its largest one-day gain in 27 months on Sunday, rebounding after last week's savage profit-taking while most Gulf markets also rallied following a strong close in global markets.
Dubai's benchmark jumped 4.7 percent in its largest one-day advance since December 2009.
Bellwether Emaar Properties climbed 4.5 percent, Arabtec surged 9.7 percent and Deyaar Development jumped 14.9 percent.
"Local retail investors have regained enthusiasm. There was a sharp correction (last week) but as anticipated it was short-lived and the market has resumed the rally," said Julian Bruce, EFG-Hermes director of institutional equity sales.
Foreign institutional buying is low, but may increase in the coming weeks, Bruce said. "Any Western institutional inflow will be deployed on larger-cap under-performing names," he added.
Sorouh Real Estate and rival Aldar Properties surged 8 percent each ahead of announcement two firms are looking to merge in a state-backed tie-up.
"The market will react positively to the news as it was out in a bull market, phrased in a very positive way - having the backing of Abu Dhabi government and most importantly, might trigger another batch of state financial support to the newly-merged entity," said a UAE-based trader who asked not to be identified.
Abu Dhabi's index climbed 1 percent, up 7.7 percent so far in 2012. But is still recovering from a three-year low hit January.
Elsewhere, Egypt's benchmark index extended decline, down 1.8 percent as investors booked recent gains.
It has slipped from last week's eight-month peak when optimism grew that Egypt was recovering from a year of political and economic turmoil.
Orascom Telecom, which is scheduled to release fourth-quarter results on Monday, dropped 5.1 percent. Orascom Telecom Media and Technology fell 5.3 percent and Commercial International Bank shed 4.3 percent.
In Saudi Arabia, the index jumped to a fresh 41-month high in heavy trade as petrochemical and banking stocks supported.
The benchmark rose 0.7 percent to its highest level since September 2008. The session traded SAR14.4bn (US$3.84bn) of shares, the largest turnover since recording turnover of SAR16.1bn on February 28, a four-year high.
Analyst say market liquidity has surged as investors shift money from real estate to local equities.
Investors are bullish in the short and medium term, believing the market is catching up with company fundamentals after underperforming last year.
"There are about 20 days left until the first quarter results are due... in addition to the ex-dividend dates... the market will not quiet down till the end of the earnings season," said Mateb Al Ghanim, portfolio manager at Amlakuna Investment Group.
Alinma Bank gained 3.1 percent, heavyweight Al Rajhi Bank climbed 0.3 percent and Bellwether Saudi Basic Industries Corp (SABIC) added 0.5 percent.
Qatar's index snapped a five-session losing streak, climbing 0.5 percent but lags its regional peers on year-to-date performance.
Industries Qatar and Qatar Electricity and Water each gained 1 percent.
"We'll probably need to see news on fresh government spending to take the next leg up," said EFG's Bruce. "In the short-term, upside is anticipated to be lower compared to the UAE, for example."
Global stocks rose on Friday after a robust US labour market report beat expectations and provided another sign the world's biggest economy is recovering.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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