Sheikh Mohammed bin Rashid Al Maktoum told the Al-Arabiya satellite channel that the economy was "strong" and "solid" in his first public statement since his government announced last Wednesday that state-owned Dubai World was restructuring and wanted a six-month minimum delay in its debt payments.

The news rocked Dubai and Abu Dhabi's markets for a second day, as the UAE's two biggest stock exchanges as well as others in the Gulf Arab region played catch-up with global markets that had digested the bad news late last week.

The Dubai Financial Market closed down 5.61% after slightly paring an earlier slide of about 6%. Abu Dhabi's stock exchange fell 3.57% by closing, after losing about 5% earlier in the day. On Monday both markets registered record falls.

Sheikh Mohammed attributed the reaction in the market to the news of Dubai World's restructuring as an indication of "a lack of understanding about what is happening in Dubai".

Earlier, the UAE's president said that the country's economy was healthy and that the international financial crisis, "despite being very harsh, will not push us toward despair".

The remarks were clear attempts by UAE officials to calm investors scrambling to get a clear understanding of how Dubai would deal with the conglomerate's debts.

Dubai officials on Monday indicated they had washed their hands of Dubai World's debts, arguing that it was an independent company that happened to be owned by the city-state.

The news rattled investors and raised more questions about whether neighbouring Abu Dhabi, the oil-rich seat of the UAE's federal government, would step in with a bailout of sort and what such a step would mean for Dubai.

Partial answers emerged on Tuesday when Dubai World announced that it had begun "constructive" discussions with its creditors over 26 billion dollars of debts. While the statement offered the first taste of clarity for a financial world eager for some transparency, it did not deal with the broader issue of how the company and Dubai itself would deal with the overall debt.