The losses, led by a drop of more than 4 percent in the regional business hub Dubai, reflect concerns that the unrest that has roiled the Arab world's most populous country and nearby Tunisia could spread, jeopardizing an economic recovery across the region.

The Tadawul All-Share Index (TASI) surged 2.47 percent or 154.75 points to close at 6,421.97 on Sunday after dropping 430.58 points on the previous day. Over SR4.85 billion worth of shares changed hands Sunday compared to SR6.30 billion on Saturday.

"The jump in the Saudi stock market was not much anticipated but it seems investors saw the sharp and exaggerated fall of 6.4 percent on Saturday as a buying opportunity. Investors had a bit more clarity also about the limited exposure of Saudi listed companies in Egypt. Banks and petrochemicals which matter the most in terms of market cap have very little cross border risk," John Sfakianakis, chief economist at Banque Saudi Fransi, said.

According to The Associated Press, the benchmark index for the Dubai Financial Market tumbled 4.3 percent to close at 1,543.02. Among the biggest losers in Dubai were real estate developer Emaar Properties, the builder of the world's tallest tower, which sank 8.3 percent to 3.11 dirhams (85 cents). Shares of budget airline Air Arabia, which is growing its operations in Egypt, dropped 6.1 percent to 0.79 dirhams (22 cents).

DP World, the global port operator, tumbled 6.2 percent to close at 62 cents on the Nasdaq Dubai exchange. The Dubai World subsidiary is heavily dependent on shipping in the Middle East and Africa, including at the Egyptian Red Sea port of Sokhna, which it manages near the southern entrance to the Suez Canal.

Abu Dhabi's main index sank 3.7 percent to close at 2,561.06. Shares of the exchange's biggest loser, Emirati natural gas producer Dana Gas, plunged 9.9 percent to finish at 0.64 dirhams despite assurances that its Egyptian operations haven't stopped amid the protests.

Egypt's bourse was closed Sunday after its main index fell 16 percent in the final two days of trading last week, the Media Line said in a report.

But Yazan Abdeen, a portfolio manager for ING Barings in Dubai, told The Media Line that investor concerns were unfounded and that there were already signs on Sunday that the initial panic had subsided.

"The underlying economic drivers vary greatly between countries. That's why you started to see Saudi pushing back and reclaiming yesterday's (Saturday's) losses,"

Abdeen said. "People who don't know the region very well worry there will be a contagion effect from Egypt to the Gulf Cooperation Council countries. But the ideology driving demonstrations in Egypt is related to poverty and unemployment. You can't say that about the Gulf."

"There's this contagion effect, where investors are thinking: Well, is this going to spread out across the Arab world?” Haissam Arabi, chief executive of Gulfmena Alternative Investments, a fund management firm in Dubai, told AP.

Kuwait shares dropped 1.8 percent to close at 6,822. Qatar's benchmark index slumped 3 percent to 8,709.77.

Shares in the Jordanian capital Amman also fell, including the blue chip Arab Bank, which is based in Jordan and has branches in nearby Egypt. It fell 3.6 percent to 9.45 dinars ($13.34), outpacing the broader market decline of 2.3 percent.

A broker at the Amman Stock Exchange told the AP the slide is "linked to the unrest in Egypt." "It's natural that investors will be frightened by such events," he said, insisting on anonymity.

Sfakianakis said: "Regional markets were expected to fall given that it was the first day of the week. From here on, we need to wait and see the level of uncertainty in the Egyptian political scene and how international markets react."

According to professor Mohamed A. Ramady of KFUPM, the fall in other Gulf countries was to be expected until the full picture from Egypt clears. "The more the situation drags on and uncertainty grips the markets, the more volatility is to be expected in the Gulf. However, as the small rally in the Saudi market on Sunday illustrates, there are some good pickings to be made by savvy investors who can differentiate between different country sovereign risk, and Saudi risk is still low compared to other countries,” he added.

"It is important to bear in mind that what we saw in Saudi Arabia on Saturday and in other parts of the region on Sunday was really the initial reaction to a new environment characterized by far greater uncertainty than had prevailed when the markets closed last week. Essentially, investors have had to re-evaluate their assumptions about the market conditions and the new pricing naturally reflects the greater stress that now obtains," Jarmo T. Kotilaine, chief economist at the National Commercial Bank, told Arab News.

The Egyptian situation remains unclear, which will continue to test investor confidence while it lasts. But the support it offers to the oil price will benefit some sectors, especially if a clear deterioration in the situation can be avoided, he added.

"Interestingly, as we look at market movements during the day(s), we see an almost immediate re-pricing to a new risk benchmark followed by fairly normal market dynamic in the new, lower range," Kotilaine said.

According to the Media Line, nervousness over Egypt wasn't confined to the Middle East. On Friday, stocks worldwide plunged the most since November, with the MSCI World Index, a barometer of global stock markets, declining 1.4 percent.

As crude oil posted its biggest jump since 2009, Canaccord Genuity said in an investor note that 1.8 million barrels of oil per day were transported through Egypt's Suez Canal in 2009. If the canal were to be closed for an extended period, the Canadian brokerage house said, it would add 6,000 extra miles of travel costs to bring oil from the Gulf to Europe and the US, raising the cost of oil.