DUBAI &S212; Concern over the debts of Dubai&S217;s utility provider and losses at Nakheel, the builder of the emirate&S217;s palm-shaped housing development, affected markets Wednesday, drowning out assurances by top officials that Arab economies in the Gulf were sound.

The Dubai debt saga has shaken global investors since the emirate&S217;s Nov. 25 announcement that it wanted a standstill on $26 billion in debt owed by Dubai World as it restructured the government-owned company, which builds and operates everything from ports to luxury apartments.

Nakheel, the property developer owned by Dubai World, added to the already battered sentiment Wednesday after its financial statements showed liabilities increasing 7.2 percent to 73.3 billion dirhams, or $20 billion, in the first half of this year.

Nakheel said it had a first-half loss of 13.4 billion dirhams.

The Dubai stock index tumbled 5.9 percent to a 32-week low in midday trade, with construction and real estate companies all down by the daily limit.

The British bank Standard Chartered, which is one of Dubai World&S217;s creditors, said any losses that it suffered in Dubai were unlikely to be material.

Its shares have fallen 12 percent since Dubai World&S217;s announcement.

While Dubai has tried to separate its profitable companies from the debt restructuring, the exercise has led to credit downgrades for all government-linked companies amid investor fears that state aid would not be forthcoming if these companies ran into trouble.

Ratings agencies said such downgrades could lead to an accelerated payment clause for the $2 billion debt of Dubai&S217;s power and water provider, Dewa, though an official there dismissed the report as speculation.

Adding to confusion among investors, Dubai&S217;s finance chief said Tuesday that the emirate would need at least six months to restructure Dubai World.

According to a banker who is close to discussions between Dubai World and its creditors but not authorized to speak to the media, Dubai World had yet to show creditors a proposal.

Underscoring the grim mood, a group representing a minority of those who hold Nakheel bonds has written to Dubai World rejecting a standstill on payments, a person familiar with the matter, but not authorized to speak to the media, said Tuesday.

&S220;Investors, especially foreign institutions, want a strong statement from Dubai officials that they&S217;ve found a clear way to help these companies,&S221; said Samer al-Jaouni, general manager of Middle East Financial Brokerage. &S220;There&S217;s no reason to buy back into the market without having a clear picture on what&S217;s going on. Confidence has been lost.&S221;

Nakheel&S217;s Islamic bond maturing on Dec saving account payday loan. 14 fell three basis points to 47 cents on the dollar Wednesday, compared with 110 cents to the dollar just before Dubai World&S217;s announcement.

&S220;This does not really enhance Nakheel&S217;s ability to meet near-term obligations,&S221; said Roy Cherry, vice president research, real estate and construction at Shuaa Capital.

Dubai&S217;s government has said that its assets, including Emirates airlines, would not be involved in any sale aimed at plugging Dubai World&S217;s debt, though some assets belonging to Dubai World could be sold. Dubai World has already said assets from Istithmar World, including Barneys New York, a luxury retail chain; DP World, a profitable port operator; and the Jebel Ali economic zone, would not be part of the wider $26 billion debt restructuring program.

On Tuesday, it added its ship-building unit, Dubai Drydocks World, to the list of businesses not for sale.

Dubai&S217;s predicament stands in stark contrast to the boom years when it bought assets around the world, lured celebrities with luxury villas and exclusive hotels and courted the media with projects like the world&S217;s tallest building.

But while neighbors funded their economic growth with proceeds from soaring oil prices, Dubai borrowed heavily to transform itself into a trade and tourism hub for the region. Creditors apparently lent to Dubai companies on the understanding that they would be backed by the central government of the oil-exporting United Arab Emirates, of which Dubai is a part.

President Sheik Khalifa bin Zayed al-Nahyan of the United Arab Emirates sought to reassure markets again Wednesday, saying the country was determined to contain the effect of the global economic crisis on its &S220;solid&S221; economy.

The Saudi oil minister, Ali al-Naimi, echoed those remarks in a speech in Dubai, saying that the Gulf economies were strong despite anxieties over financial strains in the region.

In a sign of the struggles Dubai World could face to keep its prized assets, Istithmar World lost its W Hotel in New York in a foreclosure auction Tuesday. The hotel was sold for $2 million. Istithmar World bought the property for $282 million in 2006.

Company officials said the loss was unconnected to Dubai World&S217;s debt talks.

&S220;We are disappointed that the lender has chosen this route as we felt that real progress was being made in negotiations with the various lenders to restructure the debt&S221; of the hotel, a spokesman at Istithmar World said.

Reuters

Losses at Dubai World Unit Add to Jitters