Rand eases on Abu Dhabi news

Johannesburg - The rand firmed a fraction in the afternoon session on Friday amid stories filtering through the market that Abu Dhabi is set to assist Dubai debt issue.

Yesterday government-owned investment company Dubai World, which has almost $60bn worth of liabilities, shocked global markets when it asked creditors to postpone its forthcoming payments for six months.

At 15:38 the rand was bid at 7.4898 to the dollar from 7.4866 at its previous close. It was bid at 11.1660 to the euro from its previous close of 11.2327 and was at 12.2762 against sterling from 12.3578.

The euro was bid at $1.4907 from $1.5007 overnight.

A local trader said: "We did see aggressive weakening of the rand earlier today amid the Dubai news, with concerns that it may test the technical level of 7.62 against the dollar.

"The rand however, has retraced somewhat amid stories coming through that Abu Dhabi might support Dubai to the tune of $8bn."

Earlier, Dow Jones Newswires said that the dollar and the yen are still roaring higher in Europe on Friday as the fallout from the Dubai debacle continues to resonate through global financial markets.

As equity markets fall, the prices of gold and crude oil are heading sharply lower.

Emerging-market and high-yield currencies have come under selling pressure and sterling has suffered because of the large exposure UK banks have to the Middle East in general.

With the dollar falling to a new 14-year low at ¥84.82, Japanese authorities have once again been hinting at the need for intervention to halt the sharp gains in their currency. This has helped the dollar to recoup just about all of its losses against the yen.

Also, European equities have rebounded from their lowest levels as investors take profits on some of the recent sharp post-Dubai moves.

The decision by Dubai World, the Dubai government's flagship holding company, to request a six-month freeze on repayment of nearly $60bn of debt has not only raised concern about bank exposure to the whole region, it has also put a question mark over the extent of sovereign backing for semi- sovereign names.

Timothy Ash, a strategist with the Royal Bank of Scotland said: "The risk is that in the aftermath of this, rating agencies take a less generous interpretation of sovereign support and we see a wave of quasi-sovereign downgrades. Investors will then demand a higher risk premium for holding assets of those quasi-sovereigns without explicit sovereign guarantees."

On Wednesday, just a few hours before raising the spectre of default, Dubai announced that it had raised a further $5bn from two Abu Dhabi- controlled banks that subscribed fully to a new bond issue.

Dubai had said it aimed to raise $20bn through its support fund.

- I-Net Bridge