Abu Dhabi has thrown a $10 billion lifeline to its neighbour Dubai to pay debts owed by Dubai World.
Dubai World, the government-owned investment firm, sent world markets into turmoil in November when it announced it was seeking a standstill agreement on $26 billion of its debt.
Around $4 billion of the money from Abu Dhabi will now be used to pay off major debts owed by Dubai World's Nakheel property division, which were due for repayment yesterday.
Nakheel is the property arm behind some of the emirateÔÇÖs most iconic developments, including the Palm Islands.
The UAE central bank, based in Abu Dhabi, has also said it is prepared to provide support to local banks.
The remaining funds provided by Abu Dhabi will be used to cover Dubai World's interest expenses and general business needs until the end of April, as well as to pay bills owed to existing trade creditors and contractors.
Dubai World hopes that by April it will have restructured much of its debt.
World markets responded well to the news, with Dubai's main share index closing 10 per cent higher and Abu Dhabi's rising by almost eight per cent.
The rescue fund has put an end to intense speculation over whether oil-rich Abu Dhabi would come to the aid of its more flamboyant neighbour.
It is unclear what terms have been set on the repayment of the bailout, or whether Dubai will be forced to hand over any assets, which include the former P&O ports business, New York retailing giant Barney's and the QE2 cruise liner.
In a statement, Dubai World said it welcomed the intervention of Abu Dhabi and added that it was in talks with creditors in the hope of securing the standstill agreement.
Dubai WorldÔÇÖs total debts are currently estimated to stand at $59 billion dollars, owed to a total of 90 lenders.
The foreign minister of Kuwait, which has one of the world's largest wealth funds, said on Tuesday that his country had also offered the UAE assistance to overcome DubaiÔÇÖs debt crisis.
YesterdayÔÇÖs funds bring Abu DhabiÔÇÖs total financial support for its neighbour in 2009 to $25 billion.
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