The Tadawul All-Shares Index (TASI) finished up 0.34 percent at 5,814.60 points, its first gain since September 28, boosted by a late rally by banks which reacted positively to the rate cut.

Deputy governor of the Saudi Arabian Monetary Agency (SAMA) Mohammad al-Jasser told the Saudi-owned, Dubai-based Al-Arabiya news channel that the rate cut was made after indications that inflation was dropping in the oil-rich kingdom.

Slashing the repo rate, the Saudi benchmark lending rate, makes lending cheaper.

Jasser said SAMA, the Saudi central bank, also reduced from 13 percent to 10 percent the compulsory reserves Saudi commercial banks are asked to maintain on deposits, thus giving them more freedom to lend.

The TASI, which shed almost six percent on the week's opening day Saturday, rebounded just before close on Sunday spurred by the banking and petrochemicals sectors.

The TASI however is still down 47.3 percent on the year and has shed more than 23 percent since the start of last week on concerns from the global financial meltdown.

Economists have attributed the fall to negative investor sentiment as a result of the financial turmoil and after oil prices dropped below 80 dollars on Friday.

Saudi Arabia is the world's leading crude exporter, pumping around 9.5 million barrels a day, and its revenues heavily rely on oil income.

© 2008 Agence France-Presse