Kuwait's central bank revamped monetary policy tools on Wednesday by introducing new repurchase agreements.

In the latest move by Gulf states to unthaw credit markets, Kuwait's central bank said it would offer repo agreements with maturities of one day and one month from Wednesday, in addition to the one-week repo it had offered previously.

Endeavouring to calm investors, Kuwait this week asked its sovereign wealth fund to invest in stocks, as Bahrain looks to improve bank deposit guarantees and a UAE committee meets on how to tackle the fallout from the world financial crisis.

Kuwaiti shares, down more than 30 percent this year, led gains on some Gulf markets on Wednesday as investors took the central bank's move as a cue the state would keep taking an active role at stabilising the market.

"The fear of liquidity is no longer there in the market," said Arunesh Madan, vice president of treasury at Kuwaiti investment bank Global Investment House. "This means the central bank will provide enough liquidity to banks, so the business of lending which banks usually do on a day-to-day basis will continue."    

Analysts said the central bank deliberately set the new rates well below levels on the interbank market to help channel funds into that the market, driving down rates.

The central bank set the overnight repo rate at 1 percent, the one-week rate at 2 percent and a one-month rate at 3 percent. The one-month Kuwait interbank offered rate was 3.1 percent on Wednesday.

"The reduction in the repurchase rates is aimed at reducing the attractiveness of placing deposits in the central bank, so as to boost liquidity in the interbank market," EFG-Hermes economist Monica Malik said in a note.

"This latest move is likely to place downward pressure on the interbank rate."         

Across the Gulf, policymakers are struggling to shore up confidence as investors fear economies in the world's top oil-exporting region will suffer after oil prices tumbled by more than half in four months.

Gulf states have guaranteed deposits, slashed interest rates, set up emergency funding facilities for banks and funnelled money into stock markets -- six of which have tumbled more than 30 percent this year. - Reuters