LONDON — Of the many governments that gorged on debt in the boom years, Dubai stood out. In the space of a few years, the emirate's investment arm, Dubai World, racked up $59 billion in debt building lavish projects like a giant palm tree-shaped island that catered to celebrities such as Brad Pitt, and investing in properties in the West like the MGM Grand Casino in Las Vegas.

Now, Dubai World's inability to pay its bills is sending a wave of fear rippling through global markets. The fear, which reached Wall Street on Friday and sent the Dow Jones industrial average down more than 150 points, is that other countries and institutions could be in trouble too — from other heavily indebted nations like Greece and even Britain, to high-flying emerging markets and European and American banks that have lent Dubai money.

"Dubai shows us that what we are now facing is a solvency issue, not a liquidity issue," said Jonathan Tepper, a partner at Variant Perception, a research house in London.

On Wednesday, Dubai requested that Dubai World, its chief investment vehicle, skip six months of interest payments on its debt. Before then, Dubai World, the corporate face of the emirate, had commissioned the city state's flashiest buildings, managed ports around the world and reached far overseas to invest in sterling properties like Barneys in New York.

GLOBAL DEBT PROBLEMS

Just as Bear Stearns was a harbinger of a string of failures of overly leveraged investment banks, the concern now is that Dubai could be the canary in the coal mine for heavily indebted countries. The debts of many emerging markets have risen even further as the countries have fought the ravages of the global recession.

"Whether you are Dubai, Greece, Spain, Ireland or the U.K., you can print as much money as you want, but at the end of the day you have to pay the interest on your debt," Tepper said.

While none of the countries have shown any signs of defaulting, the cost of insuring the debt of economies like Greece and Lithuania this week spiked 16 percent and 6 percent, respectively. The cost of insuring Dubai's debt shot up by 67 percent.

Greece and Britain have historically high budget deficits that exceed 12 percent of gross domestic product, with Spain not far behind and Ireland struggling with the consequences of a devastating real estate collapse.

While no one is expecting an outright default as long as global interest rates remain low, concerns have been building for months that interest rates will rise as the global economy improves and investors will become less willing to trust the word of heavily indebted governments.

BANKS APPEAR INSULATED

By the numbers, a tremor in Dubai should not necessarily shake the world banking community. According to data from the Bank for International Settlements, foreign banks have $130 billion of exposure to the United Arab Emirates, with Britain having the largest exposure, $51 billion. Banks in the United States have debts of $13 billion.

That is a negligible 0.4 percent of foreign banks' total cross border-exposure, said Stephen Jen, an analyst at the hedge fund Blue Gold capital management.

In fact, Dubai World's largest creditors are domestic banks in Dubai and Abu Dhabi.

Still, one concern is that some British banks with large credit exposure to the United Arab Emirates are already troubled.

Royal Bank of Scotland, majority controlled by the British government, was one of the largest lenders to Dubai World, having secured $2.3 billion worth of loans to the entity since early 2007, according to a report by JP Morgan. Standard Chartered and Barclays were also large lenders to the region, with more than $10 billion between them, analysts said. HSBC has $17 billion in exposure to the United Arab Emirates.

LOADS OF DEBT, LITTLE OIL

Dubai is one of the few UAE member states that has little oil wealth of its own. It acts as the trading, tourist and financial hub of the emirates. Yet it could borrow heavily to finance a building boom because Western bankers believed that the Gulf's richest oil economy, Abu Dhabi, would always bail out its free-spending neighbor. As Dubai World's debts spiraled, however, Abu Dhabi appeared to show no intention of opening its wallet. Wednesday's announcement made that perception seem more concrete.

Although Abu Dhabi may well want to make its more exuberant neighbor and its bankers suffer a bit for their profligate ways before it rides to the rescue, that gives little comfort to investors already wary of the region's growing debt pile.

"This came as a big shock," said Fahd Iqbal, an analyst at EFG-Hermes, an investment bank focused on the Middle East. Although Iqbal said he held to the view that Dubai in the end would avoid default, he acknowledged that the measure had severely rattled confidence in Dubai.

"One of the main issues now is of credibility and the potential impact on future fundraising, which could have knock-on effects on building and infrastructure plans for Dubai and the United Arab Emirates," he said.