DUBAI, June 22 (Reuters) - Saudi Arabia's stock market extended on the previous session's rally in early trade on Thursday headed for its highest close in 20 months as investors focused on shares likely to benefit from economic reforms and from MSCI's decision. The Riyadh stock index surged 5.5 percent in reaction to the appointment of the architect of the economic reform and privatisation plans, Prince Mohammed bin Salman, to crown prince. Previously the 31-year old was deputy crown prince.
The index was up 1.2 percent in the first hour of trade as some shares which were top gainers on the previous day continued to rally with the only listed miner Saudi Arabian Mining jumping surging its 10 percent daily limit in the first half hour of trade.
Banks were also strong with government-majority owned National Commercial Bank jumping 7.3 percent, extending on its 10 percent surge on Wednesday.
Civil servants' salaries are mainly deposited in their current accounts with NCB. News of the retroactive reinstatement of their allowances, which will bring in between 5 and 6 billion riyals ($1.3 billion to $1.6 billion) according to the finance minister, gave an added boost to the stock.
Samba Financial Group was up 4.2 percent and Saudi British Bank added 2.1 percent.
Analysts at Dubai-based Exotix said in a note the Saudi banking stocks "screen particularly well" compared to other sectors, because they are trading at a relatively attractive valuation.
Also, investors were happy that index compiler MSCI placed Riyadh on the watch list for an emerging market upgrade. Analysts predict the market may gain 20-30 percent through to the decision date in June 2018.
Meanwhile, Brent crude futures staying near overnight 10-month lows of $44.35 a barrel weighed on some large cap petrochemical stocks; Saudi Basic Industries was down 1.2 percent.
Qatar's stock index rebounded 2.0 percent, snapping four sessions of declines as almost all the traded stocks rose. Vodafone Qatar was up 2.7 percent.
Two traders told Reuters local mutual funds and government related funds were buying to help support the market.
Meanwhile Abu Dhabi's index fell 0.8 percent as Eshraq Properties, the most traded stock, lost 5.8 percent. On Thursday company said it will meet on July 5 to ratify the sale of the company's shares in real-estate investment fund Ward Holding.
Dubai's index was down 0.4 percent. (Reporting by Celine Aswad)