A major City broker has said that the current financial problems besetting Dubai are the result of a "debt-fuelled property binge".

Speaking on the programme Terry Smith, chief executive of Tullett Prebon, added that many investors around the world are "living in a fool's paradise", expecting regulatory bodies or governments to bail them out if things go wrong.

And Sir Howard Davies, Director of the London School of Economics, said that people "will now be wondering what just what is guaranteed debt around the world" adding that Dubai's ambitions "will have to be scaled back considerably".

Their comments come as shares on the Dubai stock exchange have fallen sharply on the first day of trading since the state-controlled investment company, Dubai World, asked creditors for more time to repay almost $60bn dollars' worth of debt.

The fall, which has not been reflected on other stock markets around the world, has happened despite an announcement by the central bank of the United Arab Emirates that it would pump liquidity into Dubai's banking sector.