Shares across Europe and Asia rebounded today as fears that Dubai’s debt crisis would sweep across global markets began to abate.

In London, the leading FTSE 100 index rose 16.16 points in early trading to 5,261.89 as this weekend’s intervention by the Central Bank of the United Arab Emirates to provide an emergency liquidity facility for local lenders appeared to calm investors.

There had been serious concerns that last week’s request from the Dubai Government to delay interest payments by Dubai World, the state-owned conglomerate which owes $59 billion of the country’s entire $80 billion debt mountain, would spark a run on local banks and leave lenders in the West nursing billions of dollars worth of losses.

However, following sharp falls last week, and the hard line stance taken by the UAE’s central bank, markets are recovering.

In Asia, Japan’s leading index bounced back 264.03 points, or 2.9 per cent, while in Hong Kong, the Hang Seng added 738.34 points, or 3.5 per cent. In France and Germany, stocks also opened higher.

In Dubai and Abu Dhabi, shares plunged. However, this was widely expected, as today is the first time investors have had chance to react to last week’s announcement following the four-day religious holiday for Eid al-Adha.

Abu Dhabi shares fell 7.6 per cent to 2,688.47 in early trade, while Dubai’s benchmark slid 5.9 per cent to 1,968.82, with banks and building stocks leading the declines.

The Dubai Government had been expected to issue a further statement this morning.

Creditors had hoped for further details on last week's request by Dubai World, the emirate's largest state-owned holding company, for a "standstill" on interest payments. Ahead of the market opening, however, nothing was released.

Last night, the rulers of Dubai and its much richer sister emirate, Abu Dhabi, were locked in fraught rescue talks.

Deloitte, the accountancy firm, asked to restructure Dubai World, is expected to say it will require until the middle of the week to assess the situation, but Aidan Birkett, the partner leading the project, is likely to draw up a list of trophy assets that could be easily sold, such as the QE2 cruise liner and Turnberry golf course.

Rothschild, the investment bank, has been advising Dubai for some months.

But the most crucial horse trading is likely to be done in secret, between the hereditary leaders of the two emirates and their coteries.

The opaqueness of the process and the silence of Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s leader and the architect of the city state’s dizzying rise as a tourist destination and commercial hub, has infuriated creditors.

The news vacuum has also stoked speculation that Abu Dhabi, which sits on a tenth of the world’s oil reserves, is driving a tough deal to bail Dubai out, possibly demanding control of key assets such as the airline Emirates.

A conflict between the two city states could hold serious consequences for the region and its biggest creditors – Britain’s banks, which are owed $50 billion.

The banks and other large creditors are close to hiring KPMG to represent them.

A Dubai-based banker said: “We’ve seen Abu Dhabi step in before. Why they haven’t this time we can only speculate, but the only reason I can think of is that they want to demonstrate that it doesn’t work without them.”

Today will mark the first key test of whether Dubai will default on its debt pile, when interest payments of about $138 million on a $2 billion bond issue by Jebel Ali Free Zone Authority, a unit of Dubai World, become due.

It has also emerged that Nakheel, the troubled property developer owned by Dubai World, has requested that all three of its sukuks (Islamic bonds) traded on the Dubai stock exchange be suspended. This includes the $4 billion sukuk due to mature on December 14, which triggered the current crisis.

The group’s statement said the three sukuks would remain suspended “until it is in a position to fully inform the market”.

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