The index of leading shares closed up 51.6 – or 1pc – at 5245.73, partly reversing Thursday’s 3.2pc drop, sharp losses at the start of trading, and plunging prices on Wall Street as US investors played catch up.

Despite the clawback, the FTSE 100 still closed the week down 0.1pc.

Wall Street was shut for Thanksgiving on Thursday, so today’s half-day session was the first opportunity for US market to respond to state-owned Dubai World’s announcement late on Wednesday that it was dely debt repayments.

The Dow Jones fell more than 200 points – or 2.2pc – at the opening bell in New York, but Anthony Grech, market strategist at IG Index, said the fall was expected and it was “a fairly orderly”. The Dow was trading down around 1.5pc when London closed.

European bourses, which fell heavliy yesterday, also rallied. Frankfurt’s DAX rose 1.27pc and in Paris the CAC 40 gained 1.1pc.

“The story for most of today has been one of continued recovery, clawing back a portion of the losses seen on Thursday in response to the concerns over Dubai’s ability to meet its debt obligations,” said Mr Grech.

However, he cautioned that with volumes low in the US and many traders off for Thanksgiving, a truer picture would only emerge next week.

Mark Mobius, the chairman of Templeton Asset Management which oversees $25bn in emerging-market assets, said in an interview on Bloomberg Television from Hanoi. “This may be the trigger to allow for the market to take a rest and pull back.”

Earlier, Asian bourses tumbled as Dubai’s actions heightened fears of a debt default that could imperil a nascent economic rebound. Japan’s Nikkei slid 3.2pc, Hong Kong’s Hang Seng index tumbled 4.8pc, and South Korea’s Kospi dropped 4.7pc.

Fears about bad debt are fresh in investors’ minds after the collapse of the US brokerage Lehman Brothers in September last year pushed the world overnight deeper into recession as banks halted lending on fears of a domino effect of bad loans.

Dubai’s ruling family moved to reassure markets. Sheikh Ahmed bin Saeed al-Maktoum, who heads the city’s Supreme Fiscal Committee, issued an urgent statement on Thursday night saying it understood “the concerns of the market and the creditors in particular”.

He said: “Our intervention in Dubai World was carefully planned and reflects its specific financial position. The Government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react.”

Source: Telegraph

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