Doha's index breaks strong resistance level of 8,800 points, which now provides support
Petrochemicals and banking, the two heavyweight sectors in Saudi Arabia, helped lift the index to a higher close, gaining strength in late trade as European shares open higher on the year's first trading day.
Bellwether Saudi Basic Industries Corp (SABIC) gained 0.5 percent, Advanced Petrochemical climbed 2.1 percent and National Industrialization rose 0.6 percent.
Signs of some improvement in the manufacturing sector and a surprise drop in German unemployment lifted global stocks and the euro on Tuesday, but rising tension in the Middle East Gulf pushed crude above $110 a barrel.
Saudi petrochemical stocks tend to track oil prices, with crude impacting their bottom line.
The all-share benchmark ended 0.2 percent higher at 6,414 points, up in three of the last five sessions.
Banque Saudi Fransi ended 1.7 percent higher. It proposed a 25 percent capital increase through a bonus share issue to help fund the bank's expansion, according to a bourse statement.
Other banks also rose, with SAAB gaining 1.7 percent, Riyad Bank climbing 0.4 percent.
Investors were optimistic on upcoming fourth-quarter earnings from the banking sector.
"Banks should report healthy earnings, lending growth has been good and it should buoy sentiment in the entire region," said Amer Khan, fund manager, Shuaa Asset Management.
Yamamah Saudi Cement expects a fourth-quarter net profit of SR191m ($50.93m), up 19 percent from the same period in 2010, it said in a bourse statement. Shares in the firm ended 0.7 percent higher.
Qatar's benchmark made its largest one-day gain in four-weeks and ended at an 11-month high on renewed buying in companies expected to post strong annual results, while UAE markets edged higher in muted trade.
Doha's index gained 1.1 percent to 8,880 points, its highest close since Feb 2011. It broke the strong resistance level of 8,800 points, which now provides support.
Heavyweight Qatar National Bank gained 1.7 percent, and Qatar Telecom and Doha Bank ended 2.3 percent higher each.
"Both Qatar and UAE are reacting to a positive sentiment at the start of New Year in Asian market," said Samer Al Jaouni, general manager of Middle East Financial Brokerage Co.
"Expectations in Qatar are still of higher dividends than in 2010 and investors are buying ahead of 2011 financial statement announcements," he adds.
Better-than-expected data from China's giant manufacturing sector boosted global stocks on their first trading-day of the year.
In UAE, Dubai's index ended 0.7 percent higher at 1,350 points and Abu Dhabi's benchmark rose 0.5 percent to 2,409 points.
Abu Dhabi's Etisalat advanced 1.6 percent, and Dubai's Emaar Properties and Arabtec climbed 2 and 5.8 percent respectively.
Aldar Properties and Sorouh Real Estate fell after recent gains, closing 3.2 percent and 4.8 percent lower respectively.
"Volatility is high in these stocks so we can see profit-taking and perhaps a technical rebound. We hope to see higher volumes in UAE but it seems unlikely before we start to hear announcements," Jaouni added.
Elsewhere, Oman's benchmark climbed 0.2 percent to close at 5,722 points, rallying for a fifth straight session as investors made a play on earnings.
Kuwait's bourse slipped 0.2 percent to 5,781 points, falling for the fourth session in five.