Debt-plagued Dubai was spared from a bond default yesterday thanks to a $10 billion last-minute lifeline from its oil-rich Emirates neighbor, Abu Dhabi.

The rescue touched off a rally on world financial markets, which were battered last month by news that Dubai and its boomtown companies were struggling under a mountain of debt. The cash infusion helped Dubai’s star firm, Dubai World, pay off a $4.1 billion IOU that came due yesterday.

Dubai said Dubai World, whose holdings range from Barneys New York to the Queen Elizabeth 2 cruise ship, will use the remaining $6 billion to cover debts through April.

The move buys Dubai valuable time. Standard & Poor’s, which along with other credit rating agencies had aggressively cut its outlook on Dubai companies, called Abu Dhabi’s intervention “a step towards rebuilding confidence.”