* Index still up 9.3 percent year-to-date
* Some foresee profit-taking after a positive FTSE decision
* Air Arabia falls to lowest level since October
* Big gain by Palm Hills sends Egypt higher
By Marwa Rashad
RIYADH, March 28 (Reuters) - Saudi Arabia's stock market pulled back because of profit-taking on Wednesday ahead of a decision by index compiler FTSE Russell on whether to upgrade Riyadh to emerging market status, while most other regional bourses were also weak.
The Saudi index has surged in recent weeks on expectations of a positive decision by FTSE on Wednesday. If MSCI also decides in June to make Saudi Arabia an emerging market, the bourse - which now has a capitalisation of about $500 billion -- could see foreign fund inflows exceeding $40 billion in the next couple of years, analysts calculate.
The recent surge has left many valuations in line with or slightly above other emerging markets, however, so some fund managers think the index could drop back after a positive FTSE decision.
The Tadawul index fell 0.5 percent to 7,900 points in active trade on Wednesday, remaining up 9.3 percent year-to-date.
Previous decisions by index companies have had little lasting impact on regional equity markets and "if oil prices drop back over the next couple of years as we expect, the rally in the Tadawul is likely to fade," London-based Capital Economics said in a report.
Khaled Feda, senior research manager at Alistithmar Capital, said the picture remained fundamentally strong.
"The outlook is generally positive. The crown prince's visit to the U.S. and the expected inflow of foreign investment, as well as the global indexes inclusion -- all these factors boost the index," he said.
"There might be profit-taking over the coming few weeks, but as foreign investors come in to the market over the next 12 months, the index is expected to gradually increase and could hit the 9,000 point level."
Al Rajhi Bank, which has been the main target of foreign fund inflows ahead of the FTSE decision, pulled back 2.3 percent. SAMBA Financial Group and Saudi Telecom lost 2.3 percent each.
Al Andalus Property Co dropped 7.7 percent in its heaviest volume since May 2016, after the company reported fourth-quarter net profit of 15.0 million riyals ($4.0 million), down from 15.8 million riyals a year earlier.
Real estate developer Jabal Omar rose 2.2 percent and food company Savola added 2.7 percent.
In Dubai, the main index was 0.1 percent lower as low-cost airline Air Arabia fell 2.5 percent to its lowest level since October. The Abu Dhabi index lost 1.3 percent with First Abu Dhabi Bank losing 3.0 percent and Abu Dhabi Commercial Bank falling 3.4 percent.
Qatar's index closed 1.6 percent down because of a 3.1 percent loss by Industries Qatar and a 2.3 percent decline by Qatar National Bank.
Qatar German Medical Devices dropped 3.7 percent in unusually heavy trade after reporting a 21.6 million riyal ($5.9 million) net loss for 2017 versus a loss of 10.3 million riyals for the previous year; the board recommended no dividend.
In Kuwait, the index closed 0.2 percent down, but telecommunications group Zain jumped 2.2 percent after its chief executive said its operator was waiting for approval from regulators in Saudi Arabia to sell its mobile towers there.
Egypt's index closed 0.2 percent higher as real estate firm Palm Hills last traded up 15.8 percent to 5.13 Egyptian pounds. Citing a presidential decree this month that reclassified agricultural land along the Cairo-Alexandria Desert Road for urban communities, Pharos Research kept an "overweight" rating on the stock and raised its fair value estimate to 6.57 pounds.
* The index lost 0.5 percent to 7,900 points.
* The index edged down 0.1 percent to 3,091 points.
* The index fell 1.3 percent to 4,551 points.
* The index dropped 1.6 percent to 8,553 points.
* The index rose 0.2 percent to 17,306 points.
* The index lost 0.2 percent to 6,604 points.
* The index lost 0.9 percent to 1,315 points.
* The index rose 0.3 percent to 4,774 points. (Editing by Andrew Torchia and Jane Merriman)