Saudi Arabia's Kingdom Holding <4280.SE> and Bahrain Telecommunications , whose bids to buy Zain's Saudi operations were rejected last month, teamed up on Sunday to make a joint bid for the assets.

The fresh offer from Kingdom, owned by Saudi billionaire Prince Alwaleed bin Talal, and Batelco raised the chances of Abu Dhabi's Etisalat completing a separate deal with Zain.

Kingdom and Batelco were among three bidders for Zain's Saudi unit, which must be sold in order to allow Abu Dhabi-based Etisalat to move forward with its $12 billion bid for a controlling stake in Zain.

Zain must sell its 25-percent stake in Zain Saudi <7030.SE>, valued at $750 million, to avoid overlap with Etisalat which also operates in the kingdom through affiliate Mobily <7020.SE>.

Zain's board is expected to meet on Sunday to discuss the offer, a source said. The bid expires Monday.

Kingdom's shares closed up 6.9 percent while Zain Saudi soared 9.16 percent and Zain shares ended up 4.41 percent. Etisalat gained 0.88 percent while Batelco was flat.

Etisalat, keen to expand outside its home market after losing its monopoly in 2007, offered to buy a 46-percent stake in Zain last September from major shareholder Kharafi Group, a family-run conglomerate.

The deal has been plagued by delays, including a lawsuit from unhappy Zain shareholders, and Etisalat has twice extended a self-imposed January 15 deadline to finish due diligence. Etisalat reiterated earlier this month it was still interested in the Kuwaiti firm.

Zain is a good asset and a great strategic fit for Etisalat so I don't think Etisalat will give up easily, said telecoms analyst Irfan Ellam at Al Mal Capital in Dubai.

Last month, a source with knowledge of the bids said the Zain board deemed the Batelco bid as too low while Kingdom did not want to taken on Zain Saudi's debts.

A third bidder, a consortium led by Al Riyadh Group, was not considered because it was unclear who was behind the group.

Batelco said at the time that its offer would have included a significant cash injection into the debt-laden firm.

Batelco also holds a 15 percent stake in Saudi Atheeb, a fixed line operator, while Zain Saudi has no fixed line license.

Zain Saudi, which also competes with Saudi Telecom Co <7010.SE> (STC), has racked up mounting losses since launching services in August 2008 and has an estimated $3.9 billion of debts.

There are a lot of issues to cover regarding Zain Saudi, such as the shareholder loans and Zain's collateral guarantees, said Simon Simonian, Shuaa Capital telecoms analyst in Dubai.

(But) Saudi Arabia is the largest and most important country in the Gulf and there's a strategic opportunity to buy into a domestic telecoms operator that may not come again - STC and Mobily are unlikely to come up for sale.

Earlier on Sunday, a Kuwaiti newspaper said Prince Alwaleed bin Talal is considering buying a controlling stake in Zain for 1.7 dinars ($6.12) per share, the same price offered by Etisalat.

(Additional reporting by Matt Smith in Dubai; Writing by Amran Abocar; Editing by Louise Heavens)