Dubai stocks dive as crisis hits

DUBAI - Dubai's main stock exchange dropped more than 7 per cent and Abu Dhabi markets slid more than 8 per cent on the first day of trading since officials went public with the city-state's debt crisis.

Shares of DP World, a profitable port-operating division of the debt-ridden Dubai World, were off nearly 15 per cent in early trading when the market opened.

The drop mirrored the turmoil on world markets after Dubai officials last week announced that Dubai World, the emirate's investment and development engine, would seek a six-month delay in paying creditors on nearly $60 billion in debt.

In an effort to calm the regional markets that had closed since last week due to an Islamic holiday, the United Arab Emirates central bank yesterday pledged to stand behind foreign and domestic banks in the country and offered additional money.

The Dubai debt crisis has underlined the fragility of market gains this year, including those by "growth sensitive" currencies such as the New Zealand dollar, says Westpac market strategist Imre Speizer.

High-yielding riskier currencies including the kiwi retreated sharply as fears rose about the contagion effects from Dubai's request for a "stand still" on debt repayments.

The kiwi, which traded as high as US73.50c last week, fell as low as US70.25c on Friday as investors again headed for the relative safety of the US dollar and Japanese yen.

After opening at US71.39c yesterday, the kiwi continued to recover throughout the session, closing at US72.11c. Speizer described the movement as "a normal bounce reaction ... as we expected given the noises that came out over the weekend about Dubai being partially protected or bailed out".

Elsewhere around the Asia Pacific region, equity markets, particularly banking stocks, were recovering from Friday's Dubai-driven sell-off, which the NZX largely avoided.

"The market over-reacted on Friday," said analyst Rock Lam of Phillips Securities in Hong Kong.

"Over the weekend, UAE has showed support to Dubai's debt issue so the market is quieting down and shares are rebounding."

In Australia the ASX posted its strongest single session gains in months with banking stocks leading the way higher.

Yesterday, ASB Bank owner Commonwealth Bank of Australia confirmed it did not expect to incur a material loss from its financial exposure to Dubai World, the company at the centre of last week's turmoil.

Meanwhile, Speizer said he did not now expect the kiwi to push on towards the US75c mark which looked likely a few weeks ago. He expected the current bounce to continue for the next day or two but the generally more fraught global environment to restrict the kiwi's gains.

Speizer also sounded a cautious note that Dubai's woes may prove to be part of a wider pattern of distress.