Saudi Arabia's stock market edged higher in early trade on Tuesday amid hopes of a pause in rate hikes by the U.S. Federal Reserve, although falling oil prices limited gains.

Most Gulf currencies are pegged to the dollar and any monetary policy change in the United States is usually mimicked by Saudi Arabia, the United Arab Emirates and Qatar.

Saudi Arabia's benchmark index added 0.1%, helped by a 0.8% gain in Al Rajhi Bank and a 0.9% increase in Alinma Bank.

Meanwhile, Saudi Arabia's economy is likely to contract by 0.5% this year following its decision on Sunday to cut oil output, Capital Economics forecasts.

On the other hand, oil giant Saudi Aramco fell 0.6%.

Dubai's main share index advanced 0.8%, on course to extend gains for an eighth session, led by a 1.3% rise in blue-chip developer Emaar Properties.

In Abu Dhabi, the index was flat.

Separately, Abu Dhabi's police and civil defence teams have brought a fire that broke out on Monday evening under control in a warehouse in the Mussafah industrial area, police said in a tweet early on Tuesday.

The Qatari benchmark declined 0.6%, weighed down by a 2.1% slide in petrochemical maker Industries Qatar.

Oil - which fuels the Gulf's economy - fell coming off gains made the previous day as concerns about the global economic backdrop outweighed supply worries raised when Saudi Arabia announced its biggest output cut in years.

(Reporting by Ateeq Shariff in Bengaluru)