The United Arab Emirates yesterday stepped in to shore up its banks and head off any potential capital flight as the nation’s federal authorities attempted to counter concerns over Dubai’s debt problems.

The UAE central bank set up an emergency liquidity facility to ease fears about its banking system, but investors remained nervous about the short-term impact on local markets as regional traders digested the global sell-off caused by the announcement that one of Dubai’s flagship entities – Dubai World – was seeking a standstill deal with creditors until May.

Because of an Islamic holiday, stock markets in Dubai and Abu Dhabi open today for the first time since Dubai World’s shock statement on Wednesday. Some brokers predict that stocks in Dubai and Abu Dhabi will drop to their limits, with banks likely to be particularly hard hit.

Financial Times