Dubai's main stock market spiked more than 10 per cent on the news.

Dubai World - a sprawling conglomerate with assets ranging from the oceanliner Queen Elizabeth 2 to luxury retailer Barney's New York - had been up against a Monday deadline to repay a pile of loans from its Nakheel property division.

US$60 billion debt

Some US$4.1 billion of the emergency funds will be used to pay off those bills. The rest will go to shore up Dubai World itself.

Dubai officials' reluctance to fully stand behind Dubai World's US$60 billion in debts had raised serious concerns about the emirate's creditworthiness, and the move by Abu Dhabi appeared aimed at quashing those worries before they undercut confidence in the United Arab Emirates as a whole.

Good governance

The two emirates share control of the UAE, a federation of seven semi-autonomous city-states.

Authorities also softened their stance Monday, vowing that the city-state was committed to "transparency, good governance and market principles".

Officials outlined a legal framework that promised to increase openness and protect creditors in future dealings with the conglomerate, offering lenders further reassurance in a country where formal bankruptcy proceedings are largely untested.

- AP