Banks play down Dubai debt threat

The price of insuring Gulf debt surged again on Friday.

Credit default swaps (CDS) for Dubai rose more than 100 basis points but were well below previous peaks in the global crisis late last year and earlier this.

Nakheel's Islamic bond prices extended losses, falling 30 points to a record low of 40, according to Reuters data.

The debt crisis in Dubai also pushed up debt insurance costs for other sovereigns in the Gulf, a wealthy region Western firms had turned to for help at the height of the credit crunch, and at some major U.S. banks.

TRANSPARENCY, CREDIBILITY

International fund managers said they were considering rotating dedicated money out of Dubai and into Abu Dhabi, Qatar and Egypt after local markets begin to open on Monday after the Muslim Eid al-Adha holiday.

Analysts said the timing of the news on the eve of the holiday, the lack of prior communication with investors, and the scant details given on the plans dented Dubai's credibility.

"The way the announcement was made, including its timing has caused damage to Dubai's credibility," Ghanem Nuseibah, senior analyst at Political Capital Policy Research & Consulting Institute. "This will take a very long time to repair."

UAE media either ignored or put a positive spin on the news. Abu Dhabi-based financial daily Alrroya Aleqtissadiya carried the headline "European markets overreact to Dubai's bond news."

But HSBC, Europe's biggest bank and the one with more loan exposure to the UAE than any other at around $15.9 billion, said it was not concerned.