DUBAI, United Arab Emirates — The United Arab Emirates has pledged to stand behind foreign and domestic banks in the country, offering additional money while extolling the strength of the nation's financial sector as world markets braced for a potential day of reckoning over Dubai's crushing debt.
The UAE's immediate priority was arguably to avert any run, however unlikely, on banks by panicked depositors. But the promise of cheap funds also signaled to global investors that the country's federal government — backed by oil money — will do what it can to limit the fallout from its indebted emirate's woes.
In a statement Sunday, the UAE's central bank said it had sent notice to Emirati banks and foreign banks with branches in the country making clear they would have access to "a special additional liquidity facility."
The offer comes after Dubai World, the conglomerate that has long been the chief engine behind Dubai's explosive growth, on Wednesday announced it needed at least a six-month reprieve from paying its roughly $60 billion debt. The news sent global markets tumbling.
The UAE has been guaranteeing bank deposits since October 2008, but the pledge for new help at generous terms stems from concern that UAE banks have some of the biggest exposure to Dubai World's debt. Several have been downgraded by international ratings agencies or been placed on review for downgrades.
It also comes as Dubai officials, who have sought to play down the semiautonomous emirate's financial woes in the wake of the world's worst recession in over six decades, are shuttling to and from Abu Dhabi, the oil-rich home to the UAE's federal government.
Ostensibly, the discussions, which have not been made public, are about how to move forward after a year that saw Dubai's economy plummet.
The central bank's announcement Sunday is the latest indication that Abu Dhabi will not allow its high-flying neighbor to derail after a decade of economic growth.
It is also aimed at mitigating any negative fallout on the country as a whole — and prevent Abu Dhabi from being tainted by the pessimism that could plague Dubai for years.
Asian stock markets rebounded today from their steep fall in response to Dubai's debt crisis.
Major markets jumped by 2 percent or more after tumbling on Friday amid fears Dubai's debt problems could lead to more financial instability just as the global recession is easing.
Nearly every market traded higher in Asia, with Japan's Nikkei 225 stock average climbing 224.82 points, or 2.5 percent.
Oil prices rebounded to near $77 a barrel.