Investors welcome £6bn Dubai handout

Dubai's £6 billion handout from oil-rich neighbour Abu Dhabi was welcomed by London investors today as financial stocks and blue-chip banks moved higher.

Barclays, HSBC and part-nationalised counterpart Royal Bank of Scotland posted gains following the emergency funding move to bail out debt-ridden Dubai.

Around £2.5 billion of the rescue cash will be used to pay off debts owed by conglomerate Dubai World's Nakheel property division, which are due today.

The emirate's ability to repay the funds in time for the deadline was seen as a key test of creditworthiness for Dubai.

There was also further relief that United Arab Emirate's central bank, based in capital Abu Dhabi, said it was prepared to provide support to local banks.

In London, banks were among a raft of financial stocks rallying higher, with the wider FTSE 100 Index also pushing through the 5300 barrier as it lifted nearly 1 per cent.

The London Stock Exchange, which is nearly 21 per cent owed by Dubai State-owned company Borse Dubai, was the biggest riser, ahead 7 per cent, after being hit recently amid fears over the emirate.

It was followed by Asian-facing bank Standard Chartered with a 4 per cent gain while HSBC and Barclays were not far behind with increases of up to 2 per cent.

Lloyds Banking Group, 43 per cent owned by the Government, was also in the spotlight as results of its £13.5 billion cash-call revealed investors took up more than 95 per cent of shares on offer.

The sector has suffered after news that Dubai World - a major, government-owned investment company - had asked for a six-month delay on repaying its debts.

European banks are said be exposed to around half of Dubai World's debts and concerns have mounted that a default would spark another crisis in the banking industry.

Today's Abu Dhabi rescue will see the immediate due debts covered, while the rest of the funds provided will cover Dubai World's interest expenses and general business needs through to the end of April.

Bills owed to existing trade creditors and contractors will also be paid.

There have not been further details of the UAE bank support, although it is thought liquidity will be pumped into local banks in relation to their possible losses from Dubai World.

Dubai also said it planned to announce a reorganisation law later today that could be used in case Dubai World was "unable to achieve an acceptable restructuring of its remaining obligations".

Dubai created Dubai World, whose sprawling holdings range from ports to property and luxury retail, to diversify its economy and boost its international standing.

The emirate is one of seven in the UAE. With little oil of its own, Dubai has relied on cheap credit to fund rapid expansion. But it has come unstuck as repayment deadlines fall due and the global recession hits home.

This saw Dubai World ask for a six-month delay on repaying some of its £37 billion in debts.

It later said a restructure would involve around £16 billion in debts and the group suggested it may sell some assets to raise the cash.

Experts at Barclays Capital said while today's Dubai news was helping UK and European markets, there were still fears over the economic stability of a number of countries.

Greece was downgraded last week as its fiscal deficit hit 12 per cent and Ireland and Spain have also been put on credit watch by ratings agencies as the global recession continues to take its toll.

"Concerns over further sovereign downgrades in Europe are likely to persist," warned BarCap analysts.