Credit Suisse analysts said in a report that investments in the Middle East accounted for up to two percent of European banks' exposure to loans in the region, of which Dubai represented just a part.

Analysts polled by Dow Jones Newswires estimated European banking exposure three times higher, at 26 billion euros (39 billion dollars).

Dubai's government rattled financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months. Ratings agency Standard and Poor's described this as a default.

Global stock markets fell sharply on the news, with European exchanges particularly hard hit. Paris and Milan each plunged by more than three percent in afternoon trading on Thursday.

Dubai has seen a surge in extravagant building projects, with vast skyscrapers springing up in the desert state, but it has suffered in global financial crisis. Most of its debt is held by state-backed companies.

If these defaulted on half of their debt, the bill for European banks would reach five billion euros, the Credit Suisse report said, naming HSBC, BNP Paribas and Deutsche Bank among those affected.

Credit Suisse said its own exposure was not substantial. French bank Calyon told AFP its exposure was "weak" and ING of the Netherlands said its own was "manageable."

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