UAE moves to counter Dubai fallout but markets wary

By Martin Dokoupil and Enjy Kiwan

DUBAI (Reuters) - The United Arab Emirates offered banks emergency support on Sunday, the first steps to ease fears that a looming debt default by two of Dubai's flagship firms could derail the global economic recovery.

But the move to inject liquidity into Dubai's banks by the central bank of the Gulf Arab state, together with promises by neighbouring city-state Abu Dhabi to provide selective support to Dubai companies was seen as by analysts as the bare minimum.

Dubai markets, which are set to open on Monday morning after a four-day holiday, are expected to fall by the maximum daily limit of 10 percent as banks, property and construction firms face investor ire over moves to restructure the Dubai economy.

The action of the UAE central bank to allay concerns by setting up an emergency liquidity facility was viewed as a necessary, but minimal policy response.

"This is the absolute minimum they could have done and suggests they won't be making another announcement before tomorrow morning, which is a little disappointing," said Raj Madha, banking analyst at EFG-Hermes.

Regional investors want any sort of guidance from the central bank or government ahead of the market open as rumours about the scope and origin of the crisis run rampant.

The supreme fiscal committee of Dubai met on Sunday evening to hammer out potential policy responses. But in the absence of concrete policy statements, doubt is likely to prevail.

The crisis began on Nov. 25 when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that has attracted celebrities and the super-rich.