Europe bucks Asia bounce on Dubai, yearend nerves

By Mike Dolan

LONDON (Reuters) - Persistent confusion over Dubai's debt workout and erratic year-end trading hit European and UK shares and sterling again on Monday, deflating earlier buoyancy in Asia as the United Arab Emirates moved to shore up its banks.

Dubai's proposed delay last week in repaying billions of dollars of debts sent shock waves across world markets, wary of bank exposure to the likes of Dubai World and property group Nakheel and concerned about a resulting rise in risk aversion during increasingly illiquid seasonal markets.

The UAE central bank's decision on Sunday to provide emergency liquidity to its banks helped ease some concerns and prompted a bounce back in emerging markets across Asia.

But analysts said it was still unclear how the central debt repayment issue would be resolved.

Abdulrahman al-Saleh, director general of Dubai's department of finance, said on Monday that the Dubai government will not guarantee Dubai World's debts, and creditors will be affected in "the short term" by the conglomerate's restructuring.

Credit rating agency Moody's said contagion effects for Abu Dhabi from the restructuring of Dubai World debt will be "unavoidable" and it added that the restructuring could lead to downgrades for UAE bank ratings.

"The market is a bit nervous still. There is a general distrust in the rally that the markets had on Friday and the Dubai issue is still rumbling away in the background," said Jim Wood-Smith, head of research at Williams de Broe.

European stock indices reversed Friday's bounce. The FTSE Eurofirst 300 fell 1.2 percent and Britain's FTSE 100 was down 0.9 percent.