KUWAIT CITY, May 26 (AFP) - The Kuwait Stock Exchange (KSE) index closed the week Wednesday up 0.6 percent with analysts confident that the cabinet's nod to foreign investment will have a positive impact. The index, which has hovered around three-year lows over the past month despite a recovery in oil prices, closed at 1,547.4 points, down 2.2 percent on the year and 45.5 percent from its peak in November 1997. But the KSE index has hit a nine-week high over past weeks, with investors expecting the government to be generous in its economic policies ahead of fresh elections. "The market was definitely expected to react positively to the news that the cabinet had approved the decrees opening Kuwait up to foreign investment, and it did," said the vice president of Al-Shall Economic Consultants. "It will increase liquidity on the bourse in the near future and make the economy more competitive," Gerard Snabian said. The cabinet approved in its weekly meeting last Sunday a draft decree allowing foreigners to own stocks in Kuwaiti holding companies. Residents of the six Gulf Arab monarchies are already allowed to trade on the bourse. It also approved a draft decree on foreign investments, the flagship of the government's policy of encouraging a greater role for Kuwait's private sector, providing incentives to attract foreign capital and technology. Previously, foreigners could own Kuwaiti stocks only through mutual funds, and foreign investors, who pay 55-percent tax on profits, could own only up to 49 percent of companies registered in Kuwait. "Indirect investment, in the form of share buying by foreigners, will still need to be regulated by the commerce ministry, as investing in certain sectors, such as banking, will be limited," Snabian said. "But Kuwait's well-sized and fundamentally-good companies offering solid assets and good yearly performances offer foreign investors a good deal, and trading has already witnessed a shift towards these companies." Snabian said he expected foreign portfolio managers to show a keen interest in the KSE. "Compared to other regional markets, the bourse has a 20-year history, it remains the most liquid market in the Gulf in terms of turnover, and prices are very attractive, the correction over the last year having driven them to their bottom level. "The decrees have come at a great time for Kuwait and potential investors who previously might have been unwilling to enter the market," Snabian said. The draft decrees still have to be referred to the emir, Sheikh Jaber al-Ahmad al-Sabah, and approved by a two-thirds majority in the next parliament. Sheikh Jaber dissolved parliament on May 4 due to a lack of cooperation from MPs with the cabinet. New elections have been set for July 3. Some 75 companies with a market capitalisation of about 20 billion dollars are listed on the KSE, the second largest stock market in the Arab world after Saudi Arabia.  