Egypt's Mursi on Saturday called a December 15 referendum on a new constitution, hoping to end protests over a decree expanding his powers, as at least 200,000 of his Islamist supporters rallied in Cairo.
Islamist groups demonstrated at Cairo University, avoiding clashes with opponents staging an open-ended sit-in at Tahrir Square, the centre of protests that ultimately forced former president Hosni Mubarak from power.
"There was an aggressive sell-off last week on expectations of bloodshed over the weekend," said Mohamed Radwan, head of equities at Pharos Securities in Cairo. "The market is making a relief rally, also on the referendum announcement."
Investors hope the referendum will help soothe political tensions, he added, speaking before the Supreme Constitutional Court postponed its work indefinitely after a protest by Islamists outside its headquarters.
The main index ended 1.8 percent higher after rising by as much as 2.8 percent intraday. It fell 11.6 percent last week.
Orascom Construction Industries climbed 3 percent, tracking gains in its London-listed global depository receipt (GDR), which rose 5.7 percent on Friday.
Commercial International Bank and Ezz Steel were other notable gainers, adding 1 and 2.8 percent respectively.
Kuwait's index slipped 0.03 percent to 5,942 points, trimming its gains since early November's eight-year low to 5.2 percent after hitting an intraday high of 6,004.
Kuwaitis voted in a new parliament on Saturday that may prove to be more government-friendly after the opposition refused to stand in the election.
"We came into work today thinking the market would be positive, but we were quickly reminded that it's still a retail-dominated, lacklustre market - investors are cautious and any trigger can send it lower," said a Kuwait-based trader who declined to be identified.
"Some retail investors were trying to create some positive momentum to get other investors to come in - it didn't look like there was any government money in the market, otherwise we would have seen more movement in the bigger names."
Stocks rallied from the November low as a government fund bought blue-chip stocks, leading retail investors to do likewise, but the latter have now cashed in some of these gains.
National Bank of Kuwait fell 1 percent, while telecom operators Zain and Wataniya dropped 2.4 and 0.9 percent. On Sunday, Zain said it had appointed a former Wataniya chief executive as its new CEO.
"I do see more positivity around the corner if the government does something concrete in terms of starting new development projects, but words are not enough - investors have heard enough promises, they want to see some actual agreements signed," said the trader.
In 2010, Kuwaiti newspapers reported government plans for a 30 billion dinars ($106.50 billion) development plan, but little has happened since, sending stocks into a long-term slump.
Saudi Arabia's benchmark rose 0.3 percent, taking its gains to 3.8 percent since Tuesday's milestone low.
The benchmark had made a sustained slump following lacklustre third-quarter earnings, worries over Saudi King Abdullah's health and political turmoil in Egypt.
But oil price gains - November was crude's first monthly rise since August - and the king's appearance on state television on Wednesday has helped convince equity investors to buy back into local shares. Markets in the United Arab Emirates were shut for a holiday.