DUBAI: Saudi shares rose on Wednesday as optimistic investors as an upbeat global backdrop helped bolster fragile regional investor sentiment.

Saudi bank shares rose, with the sector's measure up 3.5 percent on prospects of bank lending margins increasing if the US Federal Reserve hikes interest rates.

The overall sentiment and performance however, is expected to be volatile until there is clarity on government expenditure when the Kingdom announces its 2016 fiscal budget next week.

"Investors are now just waiting for the budget and surprisingly, the market is holding well given the downtrend in oil prices — this is optimism for the budget to be announced next week," said Asim Bukhtiar, head of research and investment advisory at Saudi Fransi Capital.

The Tadawul All-Share Index rose 1.4 percent, trimming year-to-date losses to 17.6 percent.

Investors are keeping an eye on next year's government expenditure plans as well as the actual spending for 2015.

Oil fell on Wednesday on fresh evidence of growing global oversupply with Brent was down 75 cents at $38.45 as of 1400 GMT.

Global shares meanwhile, rallied as investors readied for what is expected to be the first rise in US interest rates in almost a decade.

Shares in Saudi Hollandi Bank surged 7.9 percent having slumped to a 29-month low on Sunday after the lender said it would issue bonus shares.

Investors over-bet on an announcement that should provide little material benefit to shareholders.

The lender's board wants shareholders to receive one bonus share for each held, a recommendation investors thought was more important than Hollandi's proposal to pay a cash dividend of SR0.25 ($0.06) per share for 2015, a quarter of what it paid for the previous year.

Shares in Cairo rose on Wednesday. Cairo's index gained 1.1 percent, trimming year-to-date losses to 27.3 percent — underperforming all Gulf markets.

"The main problem is the tourism sector, which impacts dollar inflows due to security concerns," said Sherif Shebl, Cairo-based foreign equity sales trader at Pharos Securities.

"The focus is on the central bank and foreign reserves, which is why the government is trying to get support from the GCC."

Elsewhere, Dubai led gains but small to mid-sized stocks dominated trading volumes, signaling a risk-averse stance.

Any recovery will have to be supported by strong volumes before a sustained trend can take place.

Dubai index climbed 2.3 percent, up for a third straight gain since Sunday's two-year low.

Abu Dhabi's index rose 1.3 percent in its second gain in three days since Sunday's 12-month low, while Qatar's measure gained 0.7 percent, also up for a third day since Sunday's two-year low.

MSCI's emerging market index has lost 17.5 percent this year and some Gulf markets have underperformed this measure.

Some investors have reduced their exposure to the region's oil-driven economies as crude prices slumped to near 11-year lows.