Shares plunged across the Arab world on Tuesday as panic over the global financial crisis gripped investors, with the market in oil powerhouse Saudi Arabia sinking by more than seven percent.

The biggest loss was reported in Egypt, where the key index plummeted by more than 16 percent to its lowest level in two years and some stocks shed a whopping 65 percent of their value.

"It is a catastrophe. It is clear that we will remain volatile and unpredictable as long as global markets remain impacted by the financial turmoil," Saudi economist Abdulwahab Abu-Dahesh told AFP.

The Tadawul All-Shares Index (TASI) in Saudi Arabia -- home to the Arab world's biggest market -- initially crashed more than 570 points, or 8.6 percent, but was trading 7.4 percent down at 6,230.43 points about an hour after opening.

The index had tumbled 9.81 percent on Monday.

"We are a part of this world and are impacted psychologically and practically by what is happening in global markets," said Kuwaiti economist Ali al-Nimesh.

The slide in the Saudi market was also driven by the modest profits reported by several major banks, with two already announcing a drop for the first nine months of the year.

Almost all Saudi banks declared in announcements posted on the TASI website that they were not involved in any way in the global sub-prime mortgage crisis and are not expected to be affected.

But the move apparently failed to lift investor sentiment from rock bottom.

Other stock markets in the Gulf and Egypt were also down sharply.

The CASE-30 dropped by 16.4 percent from 7,059 to 5,903 points after trading opened for the first time since September 29 following a string of public holidays.

"There's panic, everything is down, it's incredible," Ahmed Hefnawi, an analyst with major investment bank EFG Hermes, told AFP. "All sectors have been hit, with losses of 65 percent on some stocks."

Trading was halted in several stocks after they exceeded the amount they were allowed to drop, Egypt's official MENA news agency reported.

The CASE-30 is now at its lowest point since September 2006, after almost doubling in value over the last four years to reach a high of 12,000 points in May.

In the energy-rich Gulf states, the Abu Dhabi Securities Exchange lost around 4.55 percent.

The Kuwait Stock Exchange, the second largest Arab bourse, slumped 3.6 percent, apparently after the government rejected calls by lawmakers to intervene in the market.

The Dubai Financial Market Index was down about five percent and the smaller Muscat Securities Market shed 7.3 percent while the Doha Securities Market was down just 1.4 percent.

In Israel, stocks began to recover after dropping sharply over the previous two days.

The TA-25 index, which includes the top 25 stocks by market capitalisation, was up 0.97 percent at 775.35 points while the Tel-Tech index, which is tied to Israel's booming hi-tech sector, rebounded 3.91 percent to 165.40 points.