The United Arab Emirates offered banks emergency support on Sunday, the first steps to ease fears that a looming debt default by two of Dubai's flagship firms could derail the global economic recovery.

But the move to inject liquidity into Dubai's banks by the central bank of the Gulf Arab state, together with promises by neighboring city-state Abu Dhabi to provide selective support to Dubai companies was seen as by analysts as the bare minimum.

Dubai markets, which are set to open on Monday morning after a four-day holiday, are expected to fall by the maximum daily limit of 10 percent as banks, property and construction firms face investor ire over moves to restructure the Dubai economy.

The action of the UAE central bank to allay concerns by setting up an emergency liquidity facility was viewed as a necessary, but minimal policy response.

This is the absolute minimum they could have done and suggests they won't be making another announcement before tomorrow morning, which is a little disappointing, said Raj Madha, banking analyst at EFG-Hermes.

Regional investors want any sort of guidance from the central bank or government ahead of the market open as rumors about the scope and origin of the crisis run rampant.

The supreme fiscal committee of Dubai met on Sunday evening to hammer out potential policy responses. But in the absence of concrete policy statements, doubt is likely to prevail.

The crisis began on November 25 when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that has attracted celebrities and the super-rich.

Dubai World had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion. International banks' exposure related to Dubai World could reach $12 billion in syndicated and bilateral loans, banking sources told Thomson Reuters LPC.

Investors are especially keen to discover whether the six-month standstill on debt repayments to Dubai World and Nakheel will be voluntary or involuntary. If creditors are not given a choice, the restructuring will be viewed as a default.

SLOW RESPONSE SO FAR

Abu Dhabi, the wealthy capital of the United Arab Emirates, will pick and choose how to assist debt-laden neighbor Dubai, a senior official said on Saturday.

We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts, the official in the government of the adjoining emirate of Abu Dhabi told Reuters by phone.

Selective assistance for companies in Dubai Inc., a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors. For years, many assumed that the conservative Abu Dhabi provided a safety net for its racier neighbor, which is known for its flashy nightlife and is home to the world's tallest building.

While around the world, politicians, central bank officials and corporate executives have lined up to express concern at the risks of the Dubai debt crisis hitting their own economies, leaders in the UAE have remained quiet or minimized any threats.

Local media, mostly owned or controlled by government-related entities or vested interests, initially ignored the gravity of the crisis and have now taken to criticizing foreign media for blowing events out of proportion.

A headline from Arabic-language daily Al-bayan on Sunday read: Dubai is exemplary for investment destinations. English-language Gulf News said: Global outcry over Dubai World restructuring is exaggerated.

Dubai's depressed property market may see further price declines of around 20 percent to 30 percent and increased concern over the availability of finance after the emirate it delayed debt payments at two of its flagship firms, analysts said. Renewed job cuts could further hurt housing demand.

GLOBAL SHOCK

The crisis in the business hub of the world's biggest oil exporting region has spotlighted the Gulf's lack of economic transparency, and proved an awkward reminder of the risks of investing in emerging markets from Russia to Greece to Mexico.

Analysts said the timing of the news on the eve of the Muslim Eid al-Adha holiday, the lack of prior communication with investors, and the scant details given on the plans has dented Dubai's credibility.

In response, investors around the globe have dumped stocks, bonds, currencies and commodities since Thursday of last week, and sought safe havens in assets such as gold or the U.S. dollar.

The sell-off began in Europe, spread to Asia and then the United States, whose markets were closed on Thursday for the Thanksgiving holiday. European markets dropped 3.0 percent on Thursday but rebounded on Friday, while U.S. stocks closed down 1.0 percent on Friday in response to the Dubai news.

On Friday, one of the world's leading fund managers said that rising fears of a possible debt default at Dubai's biggest company was acting as a catalyst for an overdue correction in equities and risk assets following an eight-month rally. Fund managers have been playing catch-up after the financial crisis this year by plowing monies into many speculative investments.

While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down, Mohamed El-Erian, chief executive of Pimco, the top bond fund manager, told Reuters on Friday.

The Dubai announcement is serving as this catalyst.

(Writing by Eric Auchard and Tom Atkins; Additional reporting by Raissa Kasolowsky, Martina Fuchs, Rania Oteify, Jason Benham and John Irish in Dubai, Stanley Carvalho in Abu Dhabi and Jeremy Gaunt in London; Editing by Alison Williams)

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