The United Arab Emirates' Central Bank (UAE) has set up a $13.6 billion dollar emergency lending facility, aimed at easing a credit squeeze that threatens the region's property boom.

While unprecedented in the oil-rich Gulf, the move echoes similar actions by the Federal Reserve and the European Central Bank to buffer against fallout from the credit crisis.

Here, it highlights how the emerging markets of the Middle East are longer immune from US turmoil. Analysts say the credit crunch has sent shock waves across the Gulf, where the demand for loans at Emirati banks to fuel the property market have outstripped the pace of deposits.

The global credit crisis has forced local banks to look to domestic money markets, driving up the cost of interbank lending.

"There is a massive shortfall," said Jason Goff, head of treasury sales at Emirates NBD. "These funds are going to help. They are definitely required."

The central bank had thus far been reluctant to pump money into its domestic money market, worried that such a move would drive up inflation.

But its announcement suggested it would top up the fund if needed, saying it "expects that these funds would meet banks need for supporting continued financing of economic growth."

Other resources could be tapped "for providing further support to banks operating in the UAE if required."

The Gulf's property boom makes it particularly vulnerable to a credit crunch, with massive development projects funded through loans.

Developers here are worried the demand for property could atrophy if interbank lending dries up further. In the UAE three-month lending rates have jumped 170 basis points since early June to 3.61 per cent yesterday.

Lenders have already warned companies based in the Gulf Cooperation Council (GCC) that they will find it difficult to secure loans if current market condition continue.

One analyst, who works closely with a prominent local developer, said the mood in the property market was tense: "It's as close as this place comes to a reality check. The feeling is that we can no longer take liquidity for granted."

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