United Arab Emirates stocks dived on Monday as investors waited for clarity on Dubai's plan to delay repaying billions of dollars in debt and government word on how it would tackle a crisis that has rattled global markets.

Dubai raised fears of a second bout of financial turmoil last week when it asked for a six-month repayment freeze on debt issued by state conglomerate Dubai World and its unit Nakheel, developer of three palm-shaped islands.

But global stocks steadied on Monday after the UAE central bank promised additional liquidity to local banks and an official in Dubai's oil-exporting neighbor Abu Dhabi said it would offer selective support to Dubai firms.

Investors are likely to hold on to their shares after a sharp sale last week as worries over the ripple-effect of Dubai's debt eased over the weekend, said Eddy Chen, a vice president at National Investment Trust Co Ltd in Taiwan.

There's a gradual realization that Dubai was an exceptional case and does not reflect the global economic situation.

In the Gulf, investors wanted reassurance that close to $60 billion in debts racked up by Dubai World, most of it owed to local lenders, would be repaid.

Dubai's stock market saw its biggest one-day decline since Oct 2008, and Abu Dhabi's bourse saw its biggest ever fall when they reopened on Monday after a four-day Muslim holiday.

The falls were expected. We were hoping for a government statement that would alleviate concerns, said Haissam Arabi, chief executive at Gulfmena Alternative Investments.

There was no official word for investors keen to know whether Abu Dhabi, capital of the UAE federation and home to most of the country's oil, would rescue Dubai firms. In the effective news blackout, Dubai radio replaced its live morning business program with a recorded item.

Nakheel asked for three of its Islamic bonds, worth a total $5.25 billion, to be suspended on Nasdaq Dubai until it was in a position to fully inform the market.

Dubai World had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion racked up in transforming what was a sleepy fishing town into a booming regional center for finance, investment and tourism.

FALLS

Abu Dhabi's benchmark closed 8.31 percent down and Dubai's index slid ended 7.3 percent lower.

Banks bore the brunt of the selling as investors anticipated write-downs and loan provisions, while building companies also suffered on expectations of a deeper and more prolonged real estate slump. A building boom had fueled much of the emirate's growth before the global financial crisis sent prices tumbling.

National Bank of Abu Dhabi PJSC, which said it had $345 million exposure to Dubai World Group, tumbled 9.7 percent.

The markets have been closed for the Eid al-Adha holiday since November 26 and other major Gulf markets remained shut on Monday.

Analysts said the timing of the news, the lack of prior communication with investors, and the scant detail given on the payment delay plans had dented Dubai's credibility.

However, Dubai media and some business leaders said problems had been exaggerated and rallied to support the emirate's efforts to weather the crisis.

The government of Dubai has taken a hard look at the way Dubai Inc. operates, and will fix what has not worked, English-language daily Khaleej Times wrote on Monday.

The need to restructure Dubai World is for real, and the decision to go ahead with it indicates maturity on the part of the emirate's decision-makers, the paper said in an editorial.

Major U.S. indexes fell 1.4 to 1.7 percent on Friday, barely half the fall of major Asian indexes, which rebounded on Monday.

The MSCI index of Asia Pacific stocks traded outside Japan rose 2.7 percent.

The market over-reacted on Friday, said Phillips Securities analyst Rock Lam.

ABU DHABI AID?

The UAE offered banks emergency support on Sunday, in a move welcomed by the International Monetary Fund, which also urged more clarity from the governments involved.

We look forward to further clarification by the authorities toward a cooperative mechanism to address the issues between these debtors and their creditors, it said in a statement.

An Abu Dhabi government official said on Sunday the emirate would provide only selective support to Dubai firms -- comments that fueled speculation that Abu Dhabi, which has most of the UAE's oil, will demand a political price for any Dubai bail-out.

Abu Dhabi has strong incentives not to let Dubai collapse, said a note by Eurasia Group, but any support would carry a tag.

Longer term, Abu Dhabi will use this opportunity to establish greater influence over political and economic decision-making in Dubai, and Dubai will consequently adopt a more conservative financial model, the consultancy wrote.

Abu Dhabi has long looked askance at the exuberant ambition of Dubai, which has run up its debts in pursuit of the ruling Maktoum family's dreams of building a gleaming desert city.

But some executives at international banks active in the region have voiced confidence in Dubai.

Mounir Husseini, Deutsche Bank's chief country officer for the UAE and Qatar, said in an email statement: It is clear to me that the leadership of Dubai, supported by Abu Dhabi, is committed to taking the right steps for the UAE.

(Reporting by Jason Benham, Rania Oteify, Tamara Walid and Nicolas Parasie, writing by Alistair Lyon, editing by Will Waterman)

United arab emirates Dubai