* Stocks recover as Dubai contagion fears recede
* UAE's central bank offers emergency support
* South Korean authorities pledge vigilance
* Yen falls from 14-year highs, dollar weak
(Repeats to more subscribers)
By Umesh Desai
HONG KONG, Nov 30 (Reuters) - Asian stocks recovered after
last week's steep sell-off over the Dubai debt crisis as
investors nerves steadied on hopes that the fallout of a
potential default will be limited.
Banking shares, which bore the brunt of the selling on
Friday on worries about banks' exposure to Dubai World and
property group Nakheel, were at the forefront of Monday's
rebound recouping some of last week's losses.
South Korean stock and currency markets received an
additional boost from the government's pledge it will stay
vigilant while a marginal pullback towards close at Wall Street
also helped the recovery.
The dollar surrendered some of last week's gains against
other major currencies and the yen retreated from a 14-year
high hit last week. The two units rose sharply last week as
fears of a possible Dubai debt default led to unwinding of
carry trades.
"Our feeling has been that this would not lead to
contagion," said Mark Konyn who oversees about $11 billion as
Asia-Pacific chief executive of RCM, a unit of Allianz Global
Investors.
"Investors were worried that a contagion will lead to
derisking of portfolios globally and that emerging markets will
suffer disproportionately in any after-shock," he said.
AUTHORITIES SOOTHE NERVES
Investors were also placated by authorities' moves to
prevent any major fallout from a looming debt default by two of
Dubai's flagship firms.
Financial markets shuddered last week after Dubai said it
would ask creditors of state-owned Dubai World and Nakheel, the
builder of its palm-shaped islands, for a standstill agreement
as a first step toward restructuring billions of dollars of
debt. [].
On Sunday, the United Arab Emirates offered banks emergency
support to ease fears in financial markets although analysts
say the move to inject liquidity into Dubai's banks by the
central bank, together with promises by neighbouring city-state
Abu Dhabi to provide selective support, was the bare minimum
they could do.
In Seoul, Vice Finance Minister Hur Kyung-wook said the
government would maintain a daily monitoring system until the
Dubai incident was resolved.
South Korean markets have been especially sensitive to
international financial instability mainly because the highly
leveraged local banking system is heavily exposed to the global
credit market situation.
Wall Street's truncated losses also gave investors some
hope the flight to less risky assets seemed to be subsiding.
U.S. stocks recovered slightly towards close after a slide of
more than 2 percent at the open.
"The fall in U.S. stocks wasn't as bad as expected and that
has lifted one of the biggest Dubai-related concerns, given
that worries about that don't seem to be as bad as they once
were," said Masayoshi Okamoto, head of dealing at Jujiya
Securities.
The MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> rose 2.8 percent while the Thomson Reuters
index of regional shares <.TRXFLDAXPU> was 2.6 percent higher.
BANKS LEAD REBOUND
Leading the recovery were bank and construction shares,
which were the big losers last week as investors cut exposure
to sectors most vulnerable to economic uncertainty.
HSBC Holdings <0005.HK>, which fell 7.59 percent to close
at a three-week low on Friday, climbed 3.79 percent to
HK$90.30. Standard Chartered <2888.HK>, which fell as much as
8.9 percent to a seven-week low last Friday, rose 5.39 percent
to HK$195.50.
Britain's HSBC <HSBA.L>, Europe's biggest bank, has the
biggest exposure to the UAE, according to end-2008 estimates by
the Emirates Banks Association.
The MSCI index of banking shares in Asia Pacific outside
Japan <.MIAPJFN00PUS> was up 2.9 percent while the materials
index <.MIAPJMT00PUS> was 2.7 percent.
Japan's Nikkei average <>, which hit a four-month
closing low last Friday, was up 2.4 percent as the yen's fall
from a 14-year high against the dollar also lifted exporters.
Still investors are on the edge and are now closely
monitoring developments in Dubai, while also guaging the likely
intense selling pressure in UAE markets which reopen later on
Monday in the first post-holiday trading.
UAE markets are expected to drop by their 10 percent daily
maximum, lead by builders and banks, analysts said.
[ID:nSP362937
"We want to see a little more information before we
conclude that this is contained and that markets are back on
even keel," said RCM's Konyn.
(Additional reporting by Elaine Lies in TOKYO; Editing by
Kazunori Takada)
((umesh.desai@thomsonreuters.com; +852 2843 6935; Reuters
Messaging: umesh.desai.reuters.com@reuters.net; ))
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