* Relatives of Sept. 11 victims can sue Saudi

* Legal action could take years, have little impact

* But reminder of political, financial pressures on Saudi

* Riyadh preparing for big international bond issue

* Investment policy in U.S. may be reviewed (Updates with analysis, context, implications for bond issue)

By Andrew Torchia and Tom Arnold

DUBAI, Sept 29 (Reuters) - The Saudi riyal fell against the U.S. dollar in the forward foreign exchange market on Thursday after the U.S. Congress voted to allow relatives of victims of the Sept. 11 attacks to sue Saudi Arabia.

Any legal action could take years to wind through the U.S. court system, and analysts said there might be little if any impact on the Saudi economy or state finances. But the decision by Congress was an unwelcome reminder of political and financial pressures on Riyadh as low oil prices strain its budget.

Saudi Arabia has been preparing to make its first international issue of sovereign bonds next month to raise $10 billion or more, but some Gulf bankers said the issue might now be delayed to give investors time to digest the news.

Similarly, the legal threat could make Riyadh less likely to choose New York for a listing of shares in national oil giant Saudi Aramco. An offer of Aramco shares is expected as soon as 2017, possibly raising tens of billions of dollars, and Saudi officials have said they are considering several foreign bourses.

The Senate and House of Representatives voted overwhelmingly on Wednesday to override President Barack Obama’s veto of legislation granting an exception to the legal principle of sovereign immunity in cases of terrorism on U.S. soil.

This clears the way for attempts to seek damages from the Saudi government. Riyadh has denied longstanding suspicions that it backed the hijackers who attacked the United States in 2001. Fifteen of the 19 hijackers were Saudi nationals.

One-year dollar/riyal forwards, which are trades scheduled to take place 12 months from now, were at 550 points early on Thursday, up from Wednesday’s close of 330 points. They rose as far as an eight-week high of 625 points.

The Saudi riyal is pegged at 3.75 to the dollar in the spot market, so banks often use the forwards market to hedge against risks.

“In the short term you might have volatility but the legislation will take a decade to have a result, so markets will calm down,” predicted a banker involved in Gulf currency trade, adding the main impact might be to saddle the Saudi government with tens of millions of dollars in annual legal fees.

Five-year Saudi credit default swaps, used to insure against the risk of a sovereign debt default, rose slightly to 157 points from 152, and the Saudi stock market fell slightly.

But the price of state-run Saudi Electricity Co’s April 2023 dollar Islamic bond, one of the few outstanding international bonds from Saudi Arabia, did not move significantly.

Some analysts speculated that trade and investment ties between Saudi Arabia and the United States could be hurt. The kingdom owns $96.5 billion of U.S. Treasury bonds, according to the latest official U.S. data, and is believed to hold at least that sum in other U.S. assets and bank accounts.

“From a Saudi foreign ministry perspective, there will be a review of investment policy and that could move the kingdom down a different path, which could include diversification away from U.S. Treasuries,” the Gulf banker said.

In May, Saudi foreign minister Adel al-Jubeir said the proposed U.S. law “would cause an erosion of investor confidence” in the United States, though he added that Riyadh was not threatening to pull its money out of the country.

Riyadh has been selling several billion dollars in U.S. bonds each month to cover its budget deficit, and bankers think it is unlikely to step this up as a result of the Congress vote. That is because few other markets or currencies provide the combination of liquidity and security of the $13 trillion U.S. Treasury market.

Saudi Arabia has also been eagerly courting investment by top U.S. companies such as General Electric Co to help diversify its economy beyond oil, and a trade or investment war with the United States could damage its economic reform drive.

“The U.S. is a market where the Saudis will continue to invest. I don’t think they’ll adopt a knee-jerk reaction to their investments,” said John Sfakianakis, economist with the Jeddah-based Gulf Research Centre.

“If it makes sense, they will continue to keep their assets in the United States.” (Additional reporting by Katie Paul in Riyadh; Editing by Raissa Kasolowsky)