A development by Nakheel, the property arm of Dubai World. Photograph: AP

The Dubai financial crisis continued to send shares and commodities falling around the world this morning, despite efforts by the emirate's ruling family to calm the panic.

Shares were down again across Europe, although there was an air of calm in London following yesterday's plunge. This came after a bout of heavy selling in Asia.

Today, the mood in the City is that traders are trying to catch their breath following the shock on Wednesday when Dubai World – the government-owned conglomerate that has led the dramatic growth in the emirate – asked to defer repaying some debts for six months.

Sheikh Ahmed bin Saeed al Maktoum, the uncle of Dubai's ruler Sheikh Mohammed bin Rashid al Maktoum, attempted to calm the situation last night.

"Our intervention in Dubai World was carefully planned and reflects its specific financial position," he said in a statement.

"The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular. However, we have had to intervene because of the need to take decisive action to address its particular debt burden."

It is still unclear whether Dubai World will default on its $80bn (£48.8bn) debts, which would be a major blow to the banking sector, or be bailed out by the United Arab Emirates.

The FTSE 100 tumbled by 70 points, or nearly 1.4%, to 5123 when trading began. But with share prices volatile, it clawed back most of the losses by 10am, hovering around 5171. The Nikkei 225 closed 3.2% lower, with Japan's biggest banks leading the fallers. Hong Kong's Hang Seng index fell by 5.3%.

Major building firms in Asia also fell sharply, as traders anticipated that the Dubai building boom was over.

Yesterday, the FTSE 100 suffered its worst day's trading since March, falling by 170 points.

Risky business

Today, Dubai itself came under more pressure. The cost of insuring the emirate's debt increased again, with five-year credit default swaps jumping by 129 basis points to 670 basis points this morning. Credit default swaps for Dubai World Ports jumped even more, from 608 basis points to 818.5.

These changes indicate that the markets believe there is more chance of Dubai defaulting on its debts.

And the value of an Islamic bond issued by Nakheel, Dubai World's property division, and due for repayment in December, almost halved.

Predictions that Dubai could drag the world economy downwards again knocked $5.50 off the price of a barrel of oil, to $72.49.

US investors will get their first chance to react to the situation in Dubai later today. Wall Street will start a half-day trading session at 2.30pm GMT, having been closed yesterday for Thanksgiving. With stock markets around the world having risen sharply since March, some analysts fear the crisis could spark a correction.

Many stock markets in the Middle East are closed until Monday for the feast of Eid al-Adha, making it harder to know how the region will respond to Dubai's woes.

"This certainly proves that the perceived immunity of the Gulf region from the credit crunch is a mirage, and also, puts doubts in investor minds on what else they are being economical on the truth with," said Philip Gillett of IG Index.

"I think it is the timing that has caused less violent reaction than expected, with the US holiday and Eid, so should be interesting this afternoon," he added.

Manus Cranny, senior market commentator at MF Global Spreads, said that some traders in London have been buying into the banking and mining shares in the search for bargains after yesterday's sell-off.

"Only time will tell whether this is bottom fishing or if it will turn into a deep sea dive … This bounce off the bottom in London could be a bigger mirage than the daily haze that shrouds Dubai," Cranny said.

It also emerged this morning that, according to JP Morgan, Royal Bank of Scotland has been the biggest loan arranger for Dubai World since January 2007.