The Tadawul All-Share Index (TASI) ended lower for a first session in 11 to retreat from the previous day's 12-month high, although institutional interest remained strong. The index closed 0.3 percent down at 6,738.91 points. 

Zain Saudi dropped 2.65 percent to SR7.35, Saudi Basic Industries Corp. (SABIC) fell 0.26 percent to SR95.25 and Al-Rajhi Bank declined 0.67 percent to SR74.

The value of traded shares reached SR8.82 billion on Monday.

"Saudi Arabia is generating more and more interest among institutional investors," Reuters quoted Julian Bruce, EFG-Hermes director of institutional equity sales, as saying. 

"It has a very broad and liquid market and we're seeing more encouraging stories coming out of Saudi. 

"We're supposedly getting closer to Saudi becoming fully operational for foreign activity, while the economy is in pretty good shape and getting more interest from Western institutions." 

"The main stocks driving Saudi higher in the previous few days weren't the normal institutional favorites, but insurance and cable company stocks - the more speculative names," says Ibrahim Masood, senior investment officer at Mashreq Bank in Dubai. 

"The retail investor element in Saudi Arabia is always high and Saudi has made a spectacular start to the year. You can almost see these investors rotating money between sectors, which is indicative of strong domestic liquidity." 

"I'm quite convinced that most of what we see in the region is sentiment-driven on the back of the global market tone becoming much better than it was last year," says Masood. 

"As long as we keep getting positive news from Europe and good numbers from the US, this should continue. Our rally isn't a localized phenomenon." 

Saudi Arabia's index ended at a 12-month high on Sunday and Dubai claimed its highest finish since September, with turnover also increasing significantly this year.  

"The rally in the Gulf will continue for a while, especially in Dubai and Saudi Arabia and Qatar should follow - global markets have started the week very positively," says Adel Nasr, United Securities brokerage manager. 

Dubai builder Arabtec made its largest gain in nearly two years on Monday to reach a 27-month closing high, dominating trade on the emirate's index.  

Gulf Arab markets were mixed, taking their cue from an upbeat opening in Asia before some gave back gains as European stocks declined.  

Arabtec rose 9.2 percent to its highest close since November 2009 and accounted for more than a quarter of all shares traded on Dubai's benchmark.   

But there was no news on the builder, which is forecast to report a 55 percent drop in fourth-quarter profit according to analysts polled by Reuters.  

"We are moving beyond fundamentals with this type of move on Arabtec," said Julian Bruce, EFG-Hermes director of institutional equity sales.   

Telecoms operator du made its largest drop in seven weeks, falling 2.3 percent after the firm said it had been instructed to pay a royalty of 15 percent on its 2011 net profit, plus a further 5 percent of revenue.

Dubai's index climbed 0.6 percent to 1,476 points, a five-month closing high, but failed to hold above 1,500 points, which is seen by investors as an important hurdle.    

"These psychological levels are ridiculous really, but there are people who look at these and believe they are significant and that's all it takes," said Ibrahim Masood, senior investment officer at Mashreq bank.   

"Retail investors have locked in some short-term gains."   

First Gulf Bank, down 0.9 percent, was the main drag on Abu Dhabi's benchmark, which eased from Sunday's 12-week high.    

Kuwait's Agility rose 2.8 percent after the logistics firm said it would receive $23.1 million in a court case win. — Reuters