DUBAI- Saudi Arabia's shares plunged as much as 7 percent on Sunday as investors worried about deteriorating relations with the international community after the disappearance of Saudi journalist Jamal Khashoggi.

The index suffered its biggest intraday decline since December 2014, when oil prices were crashing, with the Gulf region's biggest petrochemical producer, Saudi Basic Industries, tumbling as much as 7.9 percent.

By the close, the market had recovered some of its losses, ending down 3.5 percent. Saudi Arabia's stock market is due to be reclassified by MSCI as an emerging market next year.

"It’s the political environment. The market is reacting negatively to sentiment around the Khashoggi case and the political noise around it," said Salah Shamma, head of investment for the region at Franklin Templeton Emerging Markets Equity, a big global fund manager.

The Saudi exchange reported that foreigners were net sellers in the market in the week ended Oct. 11. Foreigners sold 1.62 billion riyals worth of shares, and bought 995.8 million riyals.

Shamma noted the fundamental situation of the Saudi economy had not so far been affected.

But regional traders said speculation the Khashoggi case might deter some inflows of foreign investment - and that a backlash in the U.S. Congress could lead to U.S. sanctions against some Saudi individuals - had triggered panic selling of stocks by some local investors.

"It seems that international accounts are punishing the Saudi exchange," a regional broker added.

Khashoggi, a prominent critic of Riyadh and a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul. Turkey believes he was deliberately killed inside the building and his body removed. Riyadh has dismissed the claims.

U.S. President Donald Trump said on Saturday there would be "severe punishment" for Saudi Arabia if it turned out that Khashoggi was killed in the consulate.

Media companies and some technology executives have pulled out of a major Saudi investment conference scheduled for next week in Riyadh because of growing outrage over the disappearance.

Other stock markets in the Gulf were dragged lower, with the Dubai index sinking 1.5 percent.

State-owned Abu Dhabi National Oil Co (ADNOC)'s listed unit, ADNOC Distribution, declined 3.5 percent even after shareholders approved an interim dividend of 0.06 dirhams a share.

In Egypt, the blue-chip index rose two percent.

Shares of Egyptian property developer Medinet Nasr rallied 10 percent after property firm SODIC said it intended to make a tender offer to acquire the company through a share swap. 

Oman's benchmark rose 0.2 percent, lifted by HSBC Oman which reported a nine-month profit of 25 million rials, compared with 13.7 million rials the same period a year earlier. Shares of HSBC Oman rose 3.4 percent.

Kuwait's market declined 1.9 percent, weighed by banks and Zain Group ZAIN.KW after regional investment bank EFG Hermes cut its target price for the company by two percent to 0.46 Kuwaiti dinars.

SAUDI ARABIA * The index lost 3.5 percent to 7,267 points.

DUBAI * The index fell 1.5 percent to 2,714 points.

ABU DHABI * The index dropped 0.7 percent to 4,931 points.

QATAR * The index slid 0.4 percent to 9,824 points.

KUWAIT * The index shed 1.9 percent to 5,159 points.

BAHRAIN * The index was largely unchanged at 1,316 points.

OMAN * The index rose 0.2 percent to 4,497 points.

EGYPT * The index rose 1.9 percent to 13,537 points.

(Reporting by Hadeel Al Sayegh, Katie Paul and David Barbuscia; Additonal reporting by Marwa Rashad; Writing by Andrew Tochia; Editing by Mark Potter) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))