Commenting on the political row caused by the deal in the US, George Bush said it could undermine efforts to build closer ties with regional allies.

"I'm concerned about a broader message this issue could send to our friends and allies around the world, particularly in the Middle East," Bush said on Friday during an appearance before a conference of the National Newspaper Association.

"In order to win the war on terror, we have got to strengthen our friendships and relationships with moderate Arab countries in the Middle East."

On Thursday, facing mounting political opposition in the US, Dubai-based DP World announced it was backing away from the deal in the face of unrelenting criticism and promised it would "transfer fully" its US operations to an American entity.

The decision spared Bush an embarassing showdown with the Republican-led Congress after he threatened to veto congressional efforts to block the deal.

However, Bush said the move meant he would have to increase efforts to shore up relations with the United Arab Emirates - of which Dubai is a part.

'Committed ally'

The deal sparked a huge political
row in the US

According to the Bush administration Dubai services more US military ships than any other country, shares useful intelligence about terrorists and helped shut down a global black-market nuclear network run by Pakistani nuclear scientist A Q Khan.

The UAE, Bush said, "is a committed ally in the war on terror".

His comments were echoed by Condoleezza Rice, the secretary of state, who said the failed ports deal "means that we are going to have to work and double our efforts to send a strong message that we value our allies, our moderate allies, in the Middle East".

In a possible first sign of the fallout from the row, the latest round of negotiations on a new free-trade arrangement between the US and the UAE, scheduled for Monday in the United Arab Emirates, has been postponed.

Investors wary

Both sides hastened to dispel speculation that the delay was the result of the ports controversy, although analysts have said US uproar over the ports deal has made many investors in the Gulf wary of increasing ties with American interests

Meanwhile in a further development to the deal itself, the Financial Times reported late on Friday that DP World was considering retaining a 49% share in US port operations.

It was unclear what impact such a decision might have in Washington. Leading congressional critics of the deal have made it clear they will closely monitor the anticipated sale of DP World's US operations.

"Any of these plans that allow Dubai Ports World to retain any portion of ownership or control over US ports is absolutely unacceptable," said Democratic Senator Charles Schumer.

"If they insist on doing so, we will move our legislation preventing them from owning or controlling any percentage of US port operations."