* MSCI world equity index up 0.4 pct on UAE bank support
* Euro/UK stocks, pound drop again as Dubai doubts persist
* Abu Dhabi shares<.ADI> off 8 pct; Dubai<.DFMGI> down 7 pct
* Dlr down 0.3 pct; yen hit as Japan official says to cap it
By Mike Dolan
LONDON, Nov 30 (Reuters) - Persistent confusion over Dubai's debt workout and erratic year-end trading hit European and UK shares and sterling again on Monday, deflating earlier buoyancy in Asia as the United Arab Emirates moved to shore up its banks.
Dubai's proposed delay last week in repaying billions of dollars of debts sent shock waves across world markets, wary of bank exposure to the likes of Dubai World and property group Nakheel and concerned about a resulting rise in risk aversion during increasingly illiquid seasonal markets.
The UAE central bank's decision on Sunday to provide emergency liquidity to its banks helped ease some concerns and prompted a bounce back in emerging markets across Asia.
But analysts said it was still unclear how the central debt repayment issue would be resolved.
Abdulrahman al-Saleh, director general of Dubai's department of finance, said on Monday that the Dubai government will not guarantee Dubai World's debts, and creditors will be affected in "the short term" by the conglomerate's restructuring.
Credit rating agency Moody's said contagion effects for Abu Dhabi from the restructuring of Dubai World debt will be "unavoidable" and it added that the restructuring could lead to downgrades for UAE bank ratings.
"The market is a bit nervous still. There is a general distrust in the rally that the markets had on Friday and the Dubai issue is still rumbling away in the background," said Jim Wood-Smith, head of research at Williams de Broe.
European stock indices reversed Friday's bounce. The FTSE Eurofirst 300 <.FTEU3> fell 1.2 percent and Britain's FTSE 100 <.FTSE> was down 0.9 percent.
UK banks have the biggest loan exposure to the UAE and
further doubts about sovereign support for Dubai saw sterling
slip slightly in mid-morning
However, Britain's HSBC
Wall St futures
The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose 2.5 percent, outperforming the 0.4 percent gain in the wider world index <.MIWD00000PUS>. Emerging markets <.MSCIEF> were up 1.1 percent.
Much of the Gulf wasc closed for a religious holiday late last week and Abu Dhabi shares fell more than 8 percent when they reopened on Monday. Dubai's equity benchmark was down 7 percent.
"The (UAE) central bank statement gives some assurance to the market and that's what has triggered the positive reaction in Asian stock markets," said Niels Christensen, strategist at Nordea in Copenhagen.
The dollar's main index, a gauge of the greenback's
performance against six other major currencies, was down 0.3
percent at 74.76 <.DXY> but held above a 15-month low of 74.170
struck last week. The euro rose 0.3 percent to $1.5020
The yen
But Klaus Wiener, head of research at Generali Investments, said investors remained worried about the impact of debt problems in Dubai. "It adds to uncertainty," he said.
Many analysts said the Dubai shock was merely a trigger for wider reassessment of 2009's global markets rally as investors took stock of positions into the final weeks of the year.
"Even if there is some relief at the beginning of this week due to some containment of the problems in Dubai, nerves are likely to remain frayed going into the end of the year, with the multi-month trend of improving risk appetite faltering even before the Dubai news," economists at Calyon told clients.
"There have been plenty of reasons for markets to worry lately including concerns about the shape of recovery in the months to come as well as renewed banking sector problems and these issues will not be allayed quickly."
As an example of those concerns in Europe, where the European Central Bank meets on Thursday amid expectations it will announce some plans to exit its current super-loose monetary policy, implied stock market volatility has soared.
Volatility measures of Germany's Dax <.V1XI> <.GDAXI> have risen to almost 30 percent from as low as 23 percent on Wednesday.
U.S. November non-farm payrolls data are also due for release on Friday and will be crucial in influencing the near-term fate of U.S. Federal Reserve monetary supports.
ASIA RELIEVED
Earlier in Asia, Hong Kong shares <.HKI>, which posted their biggest single day loss in eight months on Friday, and stocks in Japan <.N225>, which ended last week at a four-month low, were among the strongest performers in the region on Monday.
"At the end of the day Dubai and Abu Dhabi need each other. And there will be a lot of pressure on Abu Dhabi to step in, from the neighbouring countries," Templeton Asset Management fund manager Mark Mobius told Reuters.
Crude oil prices
Safe-haven European and U.S. government bond prices