DUBAI, Dec 7 (Reuters) - Day traders look likely to dominate activity in Gulf stock markets on Wednesday as many institutional funds sit back, believing markets have largely digested the recent rally in oil prices and modest improvement in Saudi Arabia's economy.

MSCI's broadest index of Asia-Pacific shares outside Japan is up 0.3 percent while Brent oil futures are up about 16 percent since the OPEC deal was inked on Nov. 30 but down slightly from a peak hit on Monday.

Short-term retail investors have dominated trading activity across the Gulf for much of this week, with Dubai's index up 2.7 percent since Sunday mainly on the back of gains in small and mid-sized shares.

Saudi Arabia's Almarai may come under pressure after the Gulf's largest dairy producer said its board had recommended a cash dividend of 0.9 riyal per share for 2016, lower than the 1.15 riyals paid for 2015.

But Saudi Investment Bank may be bid up after the company said its board had recommended an increase of the bank's capital through bonus shares, to be paid for through the transfer of retained earnings.

Saudi real estate-related shares such as Riyad REIT may attract interest after Housing Minister Majed al-Hogail announced the formation of a company to refinance up to 50 billion riyals ($13.3 billion) of housing loans - part of government efforts to spur the housing sector under its economic reform plans.

(Reporting by Celine Aswad; Editing by Andrew Torchia) ((celine.aswad@thomsonreuters.com)(+9715 6224 7653))