UPDATE 1-Saudi to attract billions as it joins FTSE stock index from next March

March@ (Adds details of inclusion, context)

DUBAI, March 28 (Reuters) - The Saudi Arabian stock market will join FTSE Russell's emerging market index starting in March next year, the company said on Wednesday, a move expected to draw billions of dollars of fresh foreign portfolio investment to the kingdom.

Many equity funds around the world benchmark themselves against the index, and they will need to buy Saudi stocks when the change takes effect. With a capitalisation of about $500 billion, Saudi Arabia is the Arab world's largest equity market.

The decision is a boost to reforms launched by Crown Prince Mohammed bin Salman, who wants foreign investment to create jobs and diversify the economy, which has been hit hard by low oil prices, beyond energy exports.

FTSE said that because of Saudi Arabia's large size, it would enter the index in several stages starting in March 2019 and ending in December that year.

The kingdom is projected to have a weighting of 2.7 percent in the index, which could rise to about 4.6 percent because of the government's proposed public offer of 5 percent of the shares of national oil giant Saudi Aramco, FTSE added.

Saudi authorities worked for years to meet criteria to enter the index, tightening rules on corporate governance, modernising the market's settlement system and easing though not completely removing restrictions on foreign ownership of stocks.

Regional investment bank EFG Hermes has estimated Saudi Arabia will attract about $5 billion of "passive", index-linked funds because of FTSE's decision.

In addition, rival index firm MSCI will decide in June whether to include Saudi Arabia in its own emerging market benchmark. A positive decision, which many fund managers expect, could produce around $10 billion of passive inflows.

Such numbers may only be the tip of the iceberg; a lot more new money could come from "active" funds, which have more discretion to move between countries.

All told, Saudi Arabia could see a total of $30 billion to $45 billion of inflows in the next two years if it reaches the foreign ownership levels of markets in the neighbouring United Arab Emirates and Qatar, EFG Hermes thinks. Reaching the levels of Mexico and Russia would mean $90 billion of inflows. (Reporting by Andrew Torchia Editing by Andrew Heavens)