* Saudi petchems surge to 17-month high

* Saudi Kayan swings to Q3 profit

* Global rally boosts regional shares after holiday

* Dubai index at new 5-yr high on retail buying

By Nadia Saleem

DUBAI, Oct 20 (Reuters) - Saudi Arabia's petrochemical shares led a bourse rally on Sunday as earnings boosted sentiment, while most regional markets also rose as they resumed trading after a week-long holiday and reacted positively to the U.S. averting a debt default.

Shares in Saudi Kayan Petrochemical surged 9.6 percent to a nine-month high after it swung to a third-quarter profit.

The company made a profit of 43.3 million riyals ($11.55 million), compared to a net loss of 178.4 million riyals in the same period last year, according to a bourse statement.

Parent firm Saudi Basic Industries Corp (SABIC) jumped 5.4 percent, helping lift the sector's index by 5 percent to a 17-month high.

"So far the petrochemical results have been better than expected - the biggest surprise is Kayan, which reported its first ever profit after eight quarters of operations," said Iyad Ghulam, petrochemical analyst at NCB Capital. "It's mainly from efficiencies - they've managed to reduce cost of operations."

"The read across on Sabic from the petchem earnings so far is they might report better than expected results due to higher prices for the third quarter. We'll see positive surprises on all firms," he added.

The Saudi index rose 1.9 percent to a two-month high, breaking out of a sideways trend.

Shares in heavyweight Al Rajhi Bank dropped 1.9 percent after it reported that its third-quarter net profit fell 8.1 percent year-on-year. The figure was also 17 percent lower than analysts' estimate.

In Dubai, the measure rose 2.8 percent to its highest level since November 2008 on renewed buying by retail investors supported by a positive global backdrop.

Global stock markets climbed to five-year highs on Friday as investors bet the U.S. Federal Reserve would extend its stimulus policy well into 2014, while accelerated growth in China's economy also lifted equity and commodity markets. A last-minute deal by U.S. lawmakers last week to avert a debt default has also improved the mood.

"We were closed for the week during which the U.S. resolved its debt ceiling issue, at least temporarily, and the government reopened. We're playing catch-up to the spike in major markets," said Sanyalaksna Manibhandu, senior analyst at NBAD Securities.

Expectations of Dubai winning the bid to host the World Expo 2020 are also supporting local sentiment. A win would spur faster infrastructure development and some optimism has already been priced into equity and property markets.