Riyadh (AFP) - Saudi Arabia's stock exchange allowed foreign investors to trade shares for the first time Monday, boosting efforts by the world's top oil exporter to become a major global capital market.

Foreign banks, brokerage houses, fund managers and insurance companies based outside the Gulf can now invest directly on the Tadawul All-Shares Index (TASI), provided they meet the requirements.

The Capital Market Authority, its chief regulator, said the move was aimed at the making the Saudi exchange -- the biggest in the Arab world -- a global player.

The goal is "to become a leading market" and move towards obtaining "emerging" status on global indices, CMA spokesman Abdullah al-Kahtani said.

The market's capitalisation of about $560 billion is more than all of the Gulf's other exchanges combined.

Analysts estimate foreign investment in the market could eventually reach $40-$50 billion, but say the new rules are not about bringing in more money to a country that already belongs to the G20 group of the world's largest economies.

Instead, they say, the main payoff from attracting foreign institutional investors will be improved transparency, accountability, and availability of macroeconomic data, alongside reduced market volatility.

The measures "could be seen as the first step in a broader liberalisation" of the economy in a country traditionally cautious about foreign political and economic influence, the Capital Economics research group wrote.

Foreign investors could already enter the Saudi market indirectly, and founding foreign owners of joint firms, such as The Saudi British Bank, were also permitted.

Analysts did not expect a sudden rush of foreign funds, which will be tightly controlled.

To be registered as a Qualified Foreign Investor (QFI) allowed to trade on the exchange, an overseas institution must have a five-year track record, with at least 18.75 billion riyals ($5 billion/4.5 billion euros) under management.

- 'What's the hurry?' -

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Each QFI can hold no more than five percent of a stock, and QFIs and their clients together are limited to 20 percent of any one listed company.

There had already been "a gradual opening up" and Saudi Arabia "will be more competitive" because of the more relaxed controls on foreign capital, said Beshr Bakheet of the privately held Osool and Bakheet Investment Company.

Saudi Arabia is currently the only major emerging economy not represented in the MSCI Emerging Markets Index.

Bakheet said Saudi Arabia's possible inclusion on that index in 2017 would raise the Tadawul's attractiveness, but he said that with a two-year leadup investors will ask "What's the hurry?"

Still, Turki Fadaak, research and advisory manager of Albilad Capital, said that once the TASI joins the Emerging Markets Index "we will see then a flow of investments".

The TASI rose less than half a percentage point minutes after opening under the new foreign ownership rules.

It then traded lower, closing down 0.86 percent or 82.87 points at 9,561.7.

The opening of the TASI to foreigners coincides with falling revenues for the kingdom which, despite efforts at diversification, still counts on oil for more than 90 percent of public income.

The International Monetary Fund projects a budget deficit of 20 percent of gross domestic product for Saudi Arabia in 2015, after global oil prices collapsed over the past year.

At the same time, government spending is forecast to remain strong, leaving it facing a deficit of $130 billion (116 billion euros), the first shortfall since 2011.

Foreign exchange reserves have also dropped with oil prices, to $683 billion at the end of April compared with $732 billion four months earlier, Jadwa Investment in Riyadh said.

The country now depends on foreign currency to fund domestic spending, meaning "an influx of foreign capital on the back of the stock market opening up would help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves", Capital Economics said.