Banks play down Dubai exposure

Credit default swaps (CDS) for Dubai rose more than 100 basis points but CDS prices were way below previous peaks in the global financial 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 $3.52 billion bond at the centre of the crisis, which was originally due to mature on Dec 14, 2009, had traded as high as 110 on Wednesday before the Dubai government said it would ask creditors to agree on a standstill of debt held by Nakheel and Dubai World until May 2010.

The debt crisis in Dubai has 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.

Analysts expect Dubai to receive financial support from Abu Dhabi, though it may have to abandon an economic model focussed on developing swathes of desert with foreign money and labour.

But the prospect of a bailout did little to allay concerns among investors, already worried the global economy may not be recovering quickly enough to justify a near doubling of prices for emerging market stocks and many commodities since March.

"The biggest worry I have is whether this will trigger a repricing in the overall emerging market," said Arthur Lau, a fund manager in Hong Kong with JF Asset Management.

(Writing by Lin Noueihed, Editing by Mike Peacock)