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Asian markets rebound as Dubai debt fears recede

Asian shares rebounded today after a heavy sell-off in global equities last week, as the United Arab Emirates central bank moved to bolster its banking sector and calm fears over Dubai's debt problems.

business Updated: Nov 30, 2009 10:18 IST

Asian shares rebounded on Monday after a heavy sell-off in global equities last week, as the United Arab Emirates central bank moved to bolster its banking sector and calm fears over Dubai's debt problems.

Hong Kong's Hang Seng index surged by more than three percent in morning trade, recovering some ground after Friday's tumble of nearly five percent, to stand at 21,833.75.

In Seoul the benchmark KOSPI was up 2.47 percent intraday after falling 4.69 percent Friday while Sydney surged 2.77 percent as of 0315 GMT.

After concerns "over the risks of a Dubai debt default becoming a global systemic event, there appeared to be a little more comfort", Philip Borkin, economist at ANZ bank in Wellington, told Dow Jones Newswires.

In Tokyo, shares rose 2.39 percent with confidence also buoyed by a rise in factory output and government plans for an extra stimulus of 31 billion dollars this fiscal year to tackle the surging yen and weak equities.

Chinese shares rose 0.65 percent Monday after the government said last week it would continue its loose monetary policy next year, dealers said.

However, the region's markets had yet to recoup all of Friday's losses, and the recent volatility was "an important reminder that all is not yet well in the global economic and financial system", said Borkin.

Sentiment was boosted by the UAE central bank decision to pump more liquidity into its banking sector, amid fears that Gulf stock markets may plunge when they reopen later Monday after a four-day Islamic festival.

The intervention came after last week's shock announcement that state-controlled conglomerate Dubai World wants to halt payments to creditors until at least May next year.

The news had sent jitters throughout world stock markets, stoking fears of a possible default by Dubai and its state-owned businesses, which together owe 80 billion dollars.

The International Monetary Fund welcomed the UAE central bank's move.

"The United Arab Emirates is a strong resource-based economy and we welcome today's announcement by the central bank of the UAE making available to banks a special additional liquidity facility," an IMF statement said.

The central bank gave no figures for the amount of liquidity being made available, but its step helped boost confidence in Asia.

In Hong Kong, shares in the two banks with the largest exposure to Dubai perked up.

HSBC was 3.9 percent higher at 90.35 Hong Kong dollars, after plunging 7.6 percent Friday. Standard Chartered was up 5.3 percent at 195.40, after sliding 8.6 percent in the previous session.

HSBC's Middle East arm was by far the single biggest foreign lender in the UAE with outstanding loans of 17 billion US dollars at the end of last year, according to the Emirates Banks Association.

Standard Chartered was next with 7.8 billion dollars owed at the end of 2008.

The dollar lingered in a 14-year trough against the yen in Asian trade Monday ahead of a slew of US economic data that could raise fresh concerns surrounding growth in the world's top economy.

However with the greenback flat at 86.74 yen in Tokyo morning trade, up from a nadir of 84.82 last week, there was some comfort for exporters.

Commodities also recovered ground in the broader market recovery.

Oil was higher in Singapore with New York's main contract, light sweet crude for January delivery, gaining 49 cents to 76.52 dollars a barrel. Hong Kong gold opened higher at 1,175.00 US dollars an ounce.

Markets were also waiting for interest rate decisions in Europe and Australia later this week.