On Thursday fears at the world markets that a Dubai debt default could reignite the financial turmoil of the credit crisis impacted European and Asian equities, lifting government bond prices and pulling the U.S. dollar off of recent lows as investors sought out safe havens.

"This an important reminder that the credit crisis is forgotten but not gone," Robert Rennie, strategist at Westpac Global Markets Group, said in a note.

On Wednesday Dubai reported that it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step toward restructuring. Dubai World, the conglomerate that led the emirate's expansion, had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion. Nakheel was the builder of three palm-shaped islands off Dubai. This had a critical effect.

"The panic button's been hit again," said Francis Lun, general manager of Fulbright Securities in Hong Kong.

While analysts expect Dubai to get a help from Abu Dhabi which is the UAE's largest emirates and producer of most of its oil, the emirate will have to cancel its previous policy of developing its deserts with foreign money and expatriate labor.

As it is known Dubai planned to become a magnet for tourists and a regional hub for everything from shipping to entertainment. But the financial crisis have spoiled its bright prospects leading the nation to debt problems that came as implications of the bubble explosion.

According to many media reports Asian credit default swaps, used to insure against default, were at their widest in a month, with the Asia ex-Japan iTraxx investment-grade index touching 124/129 basis points. Dubai's credit default swaps were being quoted as high as 500-550 basis points.