Banks, world leaders play down Dubai debt threat

By Rania Oteify and Sujata Rao

DUBAI/LONDON (Reuters) - World leaders expressed confidence in the global economic recovery Friday despite fears about a debt default by Gulf emirate Dubai, while major banks played down their exposure to the debt.

Stocks from Tokyo to New York were haunted by concern that banks were exposed to state companies in Dubai, whose rise from a desert backwater into the business hub of the world's top oil exporting area lured expatriate cash and executives.

The crisis began Wednesday when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that once attracted celebrities and the super-rich.

"While it is a setback, I think we will find it is not on the scale of previous problems we have dealt with," British Prime Minister Brown told reporters in Port of Spain.

"The world financial system is stronger now and able to deal with the problems that arise."

French Prime Minister Francois Fillon said the Gulf had the resources to ensure the world would not sink into a second round of turmoil, but Russian premier Vladimir Putin said the saga showed how hard it is to shake off a crisis that has lasted two years.

In the United States, administration officials said the Treasury Department was closely monitoring the situation in Dubai, while Canadian Finance Minister Jim Flaherty said the Group of Seven industrialized nations has had discussions about Dubai's credit issues and was monitoring consequences.

Japanese Finance Minister Hirohisa Fujii raised the prospect of a G7 joint statement on currencies in Tokyo after the Dubai debt worries pushed the Japanese yen currency to a new 14-year high against the dollar. But no such statement has been issued and the yen retreated from its earlier highs.