The UAE government also said it would ensure that no local bank would be exposed to credit risks and would guarantee inter-bank lending operations among all banks operating in the oil-rich Gulf country.
But the latest measure, coupled with interest rate cuts announced last week, failed to lift investor sentiment and shares in the UAE, as well as the rest of the region, slumped sharply.
The Dubai Financial Market Index slipped 5.4 percent to 3,025.08 points, slightly recovering from early losses that sent the index below the 3,000 mark. It has dipped 26.7 percent since last week.
The slide in the DFM came after
Market leader giant real estate developer Emaar however slid by the maximum cap. The real estate index was down by 9.74 percent.
The Abu Dhabi Securities Exchange, the other market in the UAE, recovered some of its early losses to close down 2.34 percent at 3,132.39 points with the banking sector slumping 3.8 percent despite the government guarantees.
The Saudi market, the largest in the Arab world, opened slightly up but immediately reversed course and was trading down 2.4 percent at 5,654.86 points, its lowest level since mid-2004.
The Kuwait Stock Exchange, which shed around three percent in early trading, rebounded to finish just 0.4 percent down at 11,858.10 points, spurred by the banking sector which gained 2.5 percent.
The fall came despite the government pumping nearly two billion dollars so far into the banking system.
Kuwait Investment Authority, the oil-rich emirate's sovereign wealth fund, has also injected several hundred million dollars into investment funds operating on the KSE.
"This is certainly the result of panic from the global turmoil. Negative investor confidence is pulling markets down," said Faisal Hasan, head of economic research at Kuwait Global Investment House.
"There are some liquidity issues in the banking system but we feel the Gulf banking system is safe and not exposed to the international financial crisis," Hasan told AFP.
The Doha Securities Market dropped 7.2 percent to 7,029.95 points while the tiny Muscat Securities Market finished down 5.7 percent to below 7,000 points at a year's low.
All Gulf stock markets experienced turbulence last week but reversed course at the end of the week after several governments in the region cut interest rates to make lending cheaper and promised to inject billions of dollars into the financial system.
The index, which shed 20 percent last week, dropped sharply to almost 5,100 points on opening after the weekend before rising slightly to 5,249 points.
The TA-25 index, which includes the 25 largest Israeli companies by market capitalisation, dropped to 736.66 points while the Tel-Tech index, tied to the booming hi-tech industry, plunged 15.98 percent to 142.81 points.
Outgoing Prime Minister Ehud Olmert tried to reassure the market at a weekly cabinet meeting.
"If we continue to act responsibly then the Israeli economy can overcome the global crisis," he told reporters.
Israeli stocks had initially seen heavy losses from the global financial crisis but surged last week after the Bank of Israel announced a 0.5-point cut in its base rate to 3.75 percent.