* Egypt up 15.6 percent since devaluation
* Heaviest trading volume since March
* Blue chips such as CIB, Global Telecom still favoured
* Saudi retail sector continues rebounding
* Savola hit by Egypt's devaluation
By Andrew Torchia and Celine Aswad
CAIRO/DUBAI, Nov 7 (Reuters) - Egypt's stock market rose sharply for a third day on Monday in response to the devaluation of the Egyptian pound which has raised hopes for capital inflows, while higher oil prices boosted petrochemical shares in Saudi Arabia.
The Egyptian blue chip index jumped 5.4 percent in its heaviest trade since March, bringing its gains to 15.6 percent since the pound's peg to the dollar was abandoned on Thursday. The broader EGX100 index added 2.5 percent.
The devaluation has raised hopes for major inflows of foreign money into Egyptian markets in coming months. Regional investment bank Arqaam Capital said it was going overweight on Egypt in the wake of the devaluation.
It estimated $4.5 billion of foreign money - or about 16 percent of the stock market's total capitalisation - would flow into the market in the next year if foreign ownership of stocks rose to 25 percent, a normal level for an emerging market.
Arqaam said it favoured banks that would benefit from the 3 percentage point interest rate hike that accompanied the devaluation, such as Commercial International Bank (CIB) , and firms whose income would be boosted by a weaker pound such as Global Telecom. It said it was wary of companies that would have trouble passing on higher import costs to consumers, such as Edita Food Industries.
The increase in Egyptian interest rates will support banks' profitability given their large exposure to short-term government securities, Moody's Investors Service said.
CIB shares jumped 8.3 percent on Monday, while Global Telecom surged 7.7 percent and Edita climbed 7.9 percent.
Despite the market's euphoria, Wafik Dawood, portfolio manager at Cairo-based Compass Capital, said stocks' rise would not be one-way.
"The market is re-rating assets, pricing in the weaker pound, but the trend is likely to be challenged by the super 300 basis point hike in interest rates," he said. "This will attract money because of the carry trade, but borrowers will be hit."
He added that while the long-term picture looked positive, there would be short-term volatility. "Until there is hard evidence of fund inflows sticking around long enough, markets will be unable to unlock their true potential."
Saudi Arabia's index climbed 1.5 percent, taking its gains since hitting a 2016 low on Oct. 3 to 14.4 percent.
The market has been surging since Riyadh's $17.5 billion foreign bond issue last month eased concern about government finances and banking system liquidity. Al Rajhi Capital said improving liquidity and a slight decline in Saudi interbank money rates had encouraged investors to return to stocks.
Petrochemical producers were buoyed by a 1.2 percent rebound in Brent oil futures, with the sector's index climbing 1.8 percent.
The retail sector outperformed, extending Sunday's strong gains. Apparel and mall operator Fawaz Alhokair gained 2.9 percent.
But food producer Savola Group, which has business lines in Egypt, dropped 0.3 percent after saying the devaluation of the Egyptian pound would hit its fourth-quarter results by 171 million riyals ($45.6 million).
Dubai's main index closed up 0.1 percent at 3,281 points, well below its intra-day high of 3,311 points.
Emaar Malls climbed 1.5 percent after reporting a 16 percent rise in third-quarter net profit to 435 million dirhams ($118.4 million), against EFG Hermes' forecast of 421.8 mln dirhams.
In Qatar, the index bounced 0.2 percent as oil drilling provider Gulf International Services soared 6.9 percent in its heaviest trade since late May.
Abu Dhabi's index edged down 0.1 percent as Dana Gas fell 1.9 percent and Abu Dhabi Commercial Bank lost 1.0 percent.
* The index surged 1.5 percent to 6,198 points.
* The index added 0.1 percent to 3,281 points.
* The index edged down 0.1 percent to 4,288 points.
* The index jumped 5.4 percent to 9,853 points.
* The index rose 0.2 percent to 9,964 points.
* The index rose 0.1 percent to 5,443 points.
* The index slipped 0.1 percent to 5,458 points.
* The index was flat at 1,149 points.
Editing by Robin Pomeroy