Dubai debt plan fails to stop Gulf sharemarket rout

Stocks in the Gulf region tumbled for a second straight session as anxiety over Dubai's debt crisis spread to Qatar and Kuwait.

The Dubai Financial Market's main index closed down 5.6% after falling 7.3% the previous day. A total of $US5 billion has now been wiped off the market’s value over the past two sessions.

Abu Dhabi stocks closed down 3.6%, while shares in Qatar and Kuwait were also hit, with benchmark measures down 8.3% and 2.7% respectively.

Investors remain edgy despite Dubai World saying it is in talks with banks to restructure about $US26 billion in debt.

Dubai World broke six days of market-roiling silence to announce the move, which sparked a rally on Wall Street just before Monday's close. Share prices in the US have opened stronger in the current session.

In its statement, Dubai World said about $US6 billion of the debt involved sukuk, or Islamic bonds, issued by the state-owned conglomerate, and it asked holders of the sukuk to appoint representatives as a first step in a restructuring effort.

Dubai World has also hired deal maker Ken Moelis to advise on the debt restructuring and will continue to use Rothschild as a financial adviser.

In an interview, Mr Moelis said there had been confusion between debt for Dubai World and debt issued by Dubai itself, and emphasised that the firm was "doing private transactions with private money."

Earlier, Dubai’s ruler, Sheik Mohammed bib Rashid al-Maktoum, turned on the media, blaming the press for international concerns over the emirate’s ability to deal with its debts.

"The exaggeration of the media won't affect our perseverance," he said in an emailed statement, adding that "media did not seek the truth and confused matters without knowledge."

Last month, Sheik Mohammed told reporters gathered at an investment conference in the city to "shut up" and stop criticising the emirate and its crucial relationship with Abu Dhabi amid growing concerns over its debts.

Bloomberg reports sources as saying Dubai may lose its status as the Gulf’s financial hub in return for a rescue package from its Abu Dhabi.

The bailout will mean eliminating financially unviable parts of the state-run companies which lie at the root of the city’s at least $US80 billion debt.

Dubai may also have to revert to specialising in trade and services, and drop its drive to become a regional banking centre.