European stock markets rebounded today after Wall Street didn't fall as much as feared on the news that Dubai is having trouble handling its debt.

Because US markets were closed for Thanksgiving Day yesterday, they are only reacting now to the fears that Dubai's debt problems may affect the wider financial system.

In Europe, the FTSE 100 index of leading British shares closed up 51.60 points, or 1 percent, at 5,245.73.

On Wall Street, the Dow Jones industrial average was down 154.48 points, or 1.48 percent, at 10,309.92 while the broader Standard & Poor's 500 index fell 15.64 points, or 1.4 percent, to 1,094.99. The Nasdaq fell 37.1 points, or 1.73 percent, to 2,138.44.

Though hefty, the losses in the US paled in comparison to those posted earlier in Asia, when indexes in Hong Kong and South Korea tumbled 5 percent in response to the previous day's Dubai-related losses in Europe.

"The story for most of today has been one of continued recovery, clawing back a portion of the losses seen on Thursday...a fairly orderly opening to U.S. markets has also helped calm nerves," said Anthony Grech, market strategist at IG Index.

"So far the recovery has been an encouraging one and shows that even after eight months of strongly rising stock markets, the appetite still seems to be out there to buy into the dips," Grech added.

Confidence about the world economy was hit hard by the news that Dubai World, a government investment company with around US$60 billion worth of debt, has asked creditors if it can postpone forthcoming payments until May. Investors are wondering whether the current uncertainty surrounding the emirate has brought the eight-month equities bull run to an end.

Analysts said more clarity about the long-term impact of Dubai's troubles would likely emerge next week, when Wall Street is back to normal trading hours following the Thanksgiving Day holiday. US markets are only open for half the day today.

"It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course," said Jane Foley, research director at Forex.com.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 84.81 yen.

However, the dollar climbed back off its lows to 86.87 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan's finance minister Hirohisa Fujii said he was "extremely nervous" about the movements in the yen and that the "market had moved too far in one direction."