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Though the government owns the company, "the company has multiple activities and (is) prone to risks. So from day one, it was indicated that the government is not a guarantor," said Abdel-Rahman al-Saleh, director general of the Dubai Department of Finance.

 "The gross mistake of the media is that they deem the company as part of the government. It is baseless," he told reporters.

 The Abu Dhabi index fell 241.93 points to close down 8.3 per cent at 2,668.23 on Monday. Real estate, telecommunications, energy, banking and construction sectors were all markedly lower at the end of trading.

 The Dubai index dropped 7.3 per cent to close at 1,940.36, losing 152.80 points on the day, as most listed stocks were showing declines.

 Global stocks fell last week on news that state-owned Dubai World had asked for a freeze on all its debt, having racked up 59 billion dollars in liabilities.

 The announcement was made just before markets in the UAE closed for the Eid al-Adha holiday.

 Nakheel, the real-estate development wing of the troubled giant, said it had asked for a suspension of trading of its bonds on the Dubai Nasdaq market before trading began again on Monday.

 UAE markets will open again on Tuesday, before closing again for another four days in honour of the country's national day.

 The UAE central bank said late Sunday that it would supply liquidity to banks in the country to help cushion the impact. Officials on Monday tried to alleviate concerns that banks would not have enough cash.

 "It is good to know that liquidity is available," said Costa Vayenas, the head of research for emerging markets at UBS AG.

 "The key issue seems to be support for the banks," Vayenas added, calling it a "first firewall" of support that could also help stem a spread of risk further afield to areas beyond the financial groups directly exposed to Dubai World.

 But the Dubai Deparment of Finance's al-Saleh cautioned that "creditors will be affected in the short term."

   "Lenders must bear part of the responsibility," he said.

 Vayenas said investors were concerned by a lack of clear information from Dubai, but said the market reaction could have been more volatile than it has so far been.

 Omar Taha, a financial analyst of the construction sector at Beltone Financial in Cairo, said that part of the existing problem was that it was still unknown "who is at risk and who will default."

   He felt market reaction was "overblown," but that there won't be a recovery, at least until the vagueness was cleared up.

 Also in the air was the question of how much support oil-rich Abu Dhabi would give its fellow emirate and at what price.

 With oil prices not expected to drop, cash flow to the region would not likely be a problem, as in other emerging markets with asset bubbles that saw boom turn to bust, forcing them to turn to the International Monetary Fund.

 Nakheel has a 3.5-billion-dollar Islamic bond due in December, but several analysts questioned whether this was the key issue behind Dubai World's announcement and what remained the broader funding requirements of other entities.

 Dubai World dropped 15 per cent in trading Monday on the Dubai Nasdaq exchange, the most allowed under that market's limits.

 Analysts however noted that, while Dubai World was in trouble, there were valuable assets behind the liabilities that could give it some breathing room.

 Even so, Vayenas at UBS said he believed the UAE markets were likely to be a "very volatile environment" in the upcoming weeks until the picture became clearer.

 Dubai is one of seven emirates that make up the UEA. It saw a booming economy crash after property prices collapsed and the city- state was hard hit by the global recession.

 The Dubai World request for a delay in debt payments spooked investors who feared there might be other undisclosed debt problems. The news hit a global market still reeling from a credit crunch and exposure to bad assets.

 Meanwhile, Taha felt Saudi Arabia and Egypt, and to a lesser extent Qatar, could benefit from investors looking to leave the UEA but still stay in the emerging Middle East.