Saudi stocks extended their sharp rally in early trade on Thursday following news that the Capital Market Authority is considering allowing foreign investors to own majority stakes in listed companies, while the UAE markets rebounded as investors bought up recently sold-off shares.

Saudi Arabia's benchmark index jumped 1.1%, building on its biggest single-day gain in more than five years, after Bloomberg reported regulators may ease the 49% foreign ownership cap, a move likely to attract new foreign investment to the region’s largest equity market.

Shares of Al Rajhi Bank, the world’s biggest Islamic lender, surged more than 5%, after marking the steepest gain in nearly two decades in the previous session. Saudi National Bank rose 4.4% to a level last seen nearly one-and-a-half years ago.

The potential rule change may trigger more than $10 billion in foreign inflows and lead MSCI to raise Saudi Arabia’s index weightings, boosting demand and valuations, said Daniel Takieddine, co-founder and CEO of Sky Links Capital Group.

Dubai's main share index rebounded 0.3% after two sessions of sharp decline, boosted by a 1% jump in Emirates NBD Bank.

Shares of toll operator Salik rose 0.7%, while Tecom Group climbed more than 1%.

Abu Dhabi's index edged higher 0.2%, poised to end a two-day losing run, buoyed by a 0.1% rise in International Holding Company.

Energy stocks outperformed, with ADNOC Drilling up 0.5%. Meanwhile, AI-driven space tech firm Space42 also rose 0.5% after signing a long-term deal with Dynamic Map, the U.S.-based subsidiary of Japan’s Dynamic Map Platform, to provide HD Map Data to General Motors’ Super Cruise in the UAE.

Qatar's stock index fell 0.4% to a more than two-month low. All sectors were in the red, as Industries Qatar slid 1% and Qatar Islamic Bank fell 0.4%.

(Reporting by Amna Mariyam in Bengaluru; Editing by Alex Richardson)