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UAE offers additional liquidity to banks, ahead of Monday's market open

The United Arab Emirates sought to reassure investors on Sunday, saying that it would offer additional liquidity to banks after the biggest bank there spooked investors last week when it said that it would delay debt payments.

The announcement comes after Dubai World, an investment company weighed down by real estate losses, asked creditors last week to accept delayed repayment on some of its $60 billion in debt. That led investors to doubt the financial reliability of nations even beyond the Arab world, deflating stocks in emerging markets by 2.1 percent. Investors have been worried that the debt issue could reverse what has been a global market rally in recent months, as investors begin to gain confidence that the global economy is recovering from last year's banking crisis.

The UAE’s official WAM news agency said Sunday the central bank issued a notice to Emirati banks and foreign banks with branches in the country saying it would make available “a special additional liquidity facility linked to their current accounts at the central bank,” the Associated Press reported. The statement said the facility can be drawn upon at a rate of 50 basis points — half a percent — above the three-month Emirates interbank offered rate.

Dubai, one of seven princely states that make up the United Arab Emirates, is weighed down by massive overinvestment in glitzy real estate projects, and the bill is just beginning to come due. Aiming to be the predominant financial and commercial center of the Middle East, the government has invested heavily in a jaw-dropping array of hotels, resorts and office towers that make Las Vegas seem quaint by comparison. Among the attractions: An indoor ski slope and a manmade island shaped like a palm tree.

Dubai World funded much of that investment boom and is among the world's largest investment groups. It made U.S. headlines in 2006 when one of the companies it owns, Dubai Ports World, was set to manage American ports -- but had to back off after a popular outcry over possible security concerns.

By Sara Goo  |  November 29, 2009; 11:54 AM ET
Categories:  The Ticker  
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Next: Stocks stabilize following last week's Dubai debacle

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