* MSCI world equity index up 0.4 pct on UAE bank support
* Euro/UK stocks, pound drop again as Dubai doubts persist
* Abu Dhabi shares<> off 8 pct; Dubai<> down 7 pct
* Dlr down 0.3 pct; yen hit as Japan official says to cap it
By Mike Dolan
LONDON, Nov 30 (Reuters) - Persistent confusion over Dubai's
debt workout and erratic year-end trading hit European and UK
shares and sterling again on Monday, deflating earlier buoyancy
in Asia as the United Arab Emirates moved to shore up its banks.
Dubai's proposed delay last week in repaying billions of
dollars of debts sent shock waves across world markets, wary of
bank exposure to the likes of Dubai World and property group
Nakheel and concerned about a resulting rise in risk aversion
during increasingly illiquid seasonal markets.
The UAE central bank's decision on Sunday to provide
emergency liquidity to its banks helped ease some concerns and
prompted a bounce back in emerging markets across Asia.
But analysts said it was still unclear how the central debt
repayment issue would be resolved.
Abdulrahman al-Saleh, director general of Dubai's department
of finance, said on Monday that the Dubai government will not
guarantee Dubai World's debts, and creditors will be affected in
"the short term" by the conglomerate's restructuring.
Credit rating agency Moody's said contagion effects for Abu
Dhabi from the restructuring of Dubai World debt will be
"unavoidable" and it added that the restructuring could lead to
downgrades for UAE bank ratings.
"The market is a bit nervous still. There is a general
distrust in the rally that the markets had on Friday and the
Dubai issue is still rumbling away in the background," said Jim
Wood-Smith, head of research at Williams de Broe.
European stock indices reversed Friday's bounce. The FTSE
Eurofirst 300 <> fell 1.2 percent and Britain's FTSE 100
<> was down 0.9 percent.
UK banks have the biggest loan exposure to the UAE and
further doubts about sovereign support for Dubai saw sterling
slip slightly in mid-morning <GBP=> <EURGBP=> too.
However, Britain's HSBC <HSBA.L> -- Europe's biggest bank
and the one with the greatest exposure to the UAE, according to
estimates by the Emirates Banks Association -- rose 0.5 percent.
Wall St futures <SPZ9> were a touch lower, indicating a
mixed-to-lower open for the S&P 500 index of top U.S. shares --
which have not had a full day's trading since last Wednesday.
The MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> rose 2.5 percent, outperforming the 0.4 percent
gain in the wider world index <.MIWD00000PUS>. Emerging markets
<.MSCIEF> were up 1.1 percent.
Much of the Gulf wasc closed for a religious holiday late
last week and Abu Dhabi shares fell more than 8 percent when
they reopened on Monday. Dubai's equity benchmark was down 7
percent.
"The (UAE) central bank statement gives some assurance to the
market and that's what has triggered the positive reaction in
Asian stock markets," said Niels Christensen, strategist at
Nordea in Copenhagen.
The dollar's main index, a gauge of the greenback's
performance against six other major currencies, was down 0.3
percent at 74.76 <.DXY> but held above a 15-month low of 74.170
struck last week. The euro rose 0.3 percent to $1.5020 <EUR=>,
more than a cent from last week's 15-month peak above $1.5140.
The yen <JPY=> also weakened, after a Japanese government
minister said the government has agreed to stem the currency's
rise, although he didn't specify what measures might be taken.
But Klaus Wiener, head of research at Generali Investments,
said investors remained worried about the impact of debt
problems in Dubai. "It adds to uncertainty," he said.
Many analysts said the Dubai shock was merely a trigger for
wider reassessment of 2009's global markets rally as investors
took stock of positions into the final weeks of the year.
"Even if there is some relief at the beginning of this week
due to some containment of the problems in Dubai, nerves are
likely to remain frayed going into the end of the year, with the
multi-month trend of improving risk appetite faltering even
before the Dubai news," economists at Calyon told clients.
"There have been plenty of reasons for markets to worry
lately including concerns about the shape of recovery in the
months to come as well as renewed banking sector problems and
these issues will not be allayed quickly."
As an example of those concerns in Europe, where the
European Central Bank meets on Thursday amid expectations it
will announce some plans to exit its current super-loose
monetary policy, implied stock market volatility has soared.
Volatility measures of Germany's Dax <.V1XI> <> have
risen to almost 30 percent from as low as 23 percent on
Wednesday.
U.S. November non-farm payrolls data are also due for
release on Friday and will be crucial in influencing the
near-term fate of U.S. Federal Reserve monetary supports.
ASIA RELIEVED
Earlier in Asia, Hong Kong shares <.HKI>, which posted their
biggest single day loss in eight months on Friday, and stocks in
Japan <>, which ended last week at a four-month low, were
among the strongest performers in the region on Monday.
"At the end of the day Dubai and Abu Dhabi need each other.
And there will be a lot of pressure on Abu Dhabi to step in,
from the neighbouring countries," Templeton Asset Management
fund manager Mark Mobius told Reuters.
Crude oil prices <CLc1> were up 0.6 percent at $76.5 per
barrel. Gold prices <XAU=> were lower at $1168.70 per ounce.
Safe-haven European and U.S. government bond prices
<US10YT=RR> <DE10YT=RR> were little changed.
(Additional reporting by Umesh Desai, Jamie McGeever, Joanne
Frearson, Atul Prakash; editing by Stephen Nisbet)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
((mike.dolan@reuters.com; +44 20 7542 8488; Reuters Messaging:
mike.dolan.reuters.com@reuters.net))
