DUBAI (Bloomberg) — Dubai's government said it hasn't guaranteed the debt of Dubai World, the state-controlled holding company struggling with $59 billion in liabilities, and that creditors must help it restructure.

"It is correct that the government owns Dubai World, but the decision when it was set up was that it should receive financing based on the viability of its projects, not on government guarantees," Abdulrahman Al Saleh, director general of the emirate's Department of Finance, said in an interview with Dubai TV, when asked whether the government was backing the debt. "The lenders should bear part of the responsibility."

Dubai's government said last week that Dubai World would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The announcement led to the biggest declines in Asian shares in three months last week and Europe's worst rout since April. Investors were concerned the proposal risks triggering the biggest sovereign default since Argentina in 2001.

Dubai shares tumbled and Abu Dhabi's stock index yesterday fell the most in at least eight years on the first trading day since the announcement. The Dubai Financial Market General Index dropped 7.3 percent to 1,940.36, the biggest decline since October 2008. Abu Dhabi's ADX Index fell 8.3 percent, the most since Bloomberg began compiling the data in 2001.

Nakheel PJSC, Dubai World's property unit whose $3.52 billion Islamic bond is due December 14, asked the Nasdaq Dubai stock market today to suspend its securities "until it is in a position to fully inform the market".

"The times of implicit support are clearly over," said Philipp Lotter, vice-president of Moody's Investors Service in Dubai. "In the past entities such as Dubai World certainly represented themselves as quasi-government entities, whereas there was no legal obligation on behalf of the government to support, and that has certainly shifted with last week's announcement."

In the prospectus for its first Islamic bond sale in October, the government said "certain strategic government-related entities of the emirate have significant borrowings which are not direct obligations of the government of Dubai." The government raised $1.93 billion from local and international investors in the sale.

"If any of these entities are unable to, or are potentially unable to, fulfill their debt obligations, the Dubai government, although not legally obliged to do so and without any obligation whatsoever, may at its sole discretion decide to extend such support as it may deem suitable," according to the prospectus.

"It's not correct to assume that Dubai World is part of the government of Dubai," al-Saleh said.

Dubai led a decline in the cost of protecting bonds in the Gulf region from default yesterday after the UAE Central Bank eased credit for lenders and said it "stands behind" local and foreign banks as they face the prospect of rising losses from Dubai World's possible default.

Credit-default swaps on Dubai fell 59 basis points to 588, according to CMA DataVision prices at 1.30 p.m. in London. The contracts more than doubled last week.

National Bank of Abu Dhabi PJSC, the United Arab Emirates' second-largest bank by assets, and Abu Dhabi Commercial Bank PJSC fell the most in more than five years on exposure to Dubai World Group. NBAD said yesterday it's owed $345 million by the company. ADCB may be owed $1.9 billion, two people familiar with the matter said on November 27.

The UAE support facility is one of several steps taken by the central bank to cushion the country from the impact of the global credit crisis. The bank made 50 billion dirhams ($13.6 billion) available to banks in September last year and guaranteed deposits of all local lenders and some foreign banks the following month to boost confidence.

Dubai, the second-biggest of seven states that make up the UAE, and its state-owned companies borrowed $80 billion to fund an economic boom and diversify its economy. The global credit crisis and a decline in property prices hurt companies like Dubai World as they struggled to raise loans.