By CHIP CUMMINS

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Charles Crowell/Bloomberg News

The Burj Dubai, the world's tallest skyscraper, towers over buildings under construction in the Business Bay area in Dubai.

DUBAI -- Persian Gulf bonds tumbled and the cost of insuring against default across the region jumped Thursday, a day after the government of Dubai said it would ask to postpone debt of its corporate flagship Dubai World.

Credit agencies late Wednesday cut ratings of Dubai debt, as investors and analysts reassessed the region's willingness to bail out troubled borrowers.

Dubai's action also shook global markets. Stocks in London fell Thursday, with analysts blaming worry over international exposure to Dubai debt. Analysts and bankers, however, downplayed the notion of significant exposure by any one institution or any systemic risk from the announcement.

Still, the shock to confidence in the region was dramatic, even accounting for light trading because of the start of the Muslim Eid holiday in the Persian Gulf and Thanksgiving in the U.S. Even cash-rich governments such as Qatar and Abu Dhabi, a fellow member with Dubai in the United Arab Emirates, saw investors flee sovereign credit.

The cost of insuring against a Dubai default rose sharply again Thursday in London, to $547,000 per year per $10 million in debt. That was up from $318,000 on Tuesday. Insurance against a default in Saudi Arabia, backed by huge petrodollar surpluses, climbed by almost a fifth Thursday.

Reflecting the nervousness over exposure to Dubai at regional banks, default insurance for Mashreqbank, one of Dubai's biggest, more than doubled my mid-afternoon London time, compared to Wednesday's New York close. A representative wasn't reachable late Thursday.

Standard & Poor's said it was putting four of Dubai's biggest banks on credit watch with negative implications because of their large exposure to Dubai World debt, and more generally Dubai-related credit.

The government of Dubai said Wednesday it will take over restructuring its largest corporate entity, Dubai World, a conglomerate spanning real estate and ports. As part of that effort, it said it intended to ask lenders for at least a six-month delay on debt payments.

The so-called standstill announcement came after local business hours Wednesday and just before a long-weekend holiday across the Muslim world. It surprised bankers and analysts, who had been reassured by positive statements from Dubai officials over the city-state's finances, and the recent willingness of Dubai and the federal government based in Abu Dhabi to step in and plug financing holes.

"The most negative effect of yesterday's announcement is a major shock to confidence in the U.A.E., and the region more generally," said Richard Fox, a credit analyst at Fitch Ratings in London. "People will now question government support."

The Dubai World restructuring represents the most significant fallout so far in the city-state's yearlong economic crisis, triggered by a collapse in Dubai's once-booming real-estate sector late last year. Regional banks were already hobbled by a global credit freeze late last year and exposure to Dubai's wilted property market.

Late Wednesday, Moody's Investors Service and Standard & Poor's heavily downgraded the debt of various other Dubai government-related entities. Moody's slashed to junk status several Dubai entities, including the property developer Emaar PJSC, which is slated to open the world's largest skyscraper next year.

Agencies have been downgrading Dubai entities for the better part of a year, as they reassess the willingness and ability of the government to support its indebted corporations. Standard & Poor's said Thursday the Dubai World restructuring "may be considered a default under our default criteria, and represents the failure of the Dubai government … to provide timely financial support to a core government-related entity."

The market moves are all likely to translate into much higher borrowing costs for Dubai entities as they face looming debt maturities over the next few years. Standard & Poor's recently estimated Dubai's government and its corporations have some $50 billion in debt coming due just in the next three years.

Holders of a $3.5 billion sukuk, or Islamic bond, issued by Dubai World property subsidiary Nakheel, due next month, face the most immediate threat of delayed payments. Several Nakheel holders had scheduled a conference call to discuss options later Thursday, according to Zawya Dow Jones. The bond was seen as a crucial test of Dubai's ability to pay its debts.

The standstill request is one more troubling development for international banks, which turned in recent years to the oil-rich Middle East as a fresh source of income. While banks across the region have been relatively insulated from the worst of the financial crisis, international lenders have been burnt by some of the region's once high-flying developers and conglomerates.

Local and international banks are also licking their wounds from the debt troubles this year of two big family-run Saudi Arabian conglomerates, which owe more than 100 lenders a conservatively estimated $15 billion.