Dubai woes hit world stocks again; Asia down most

By PAN PYLAS

posted: ONE MINUTE AGO

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LONDON -European stock markets regained their poise Friday but Asia fell sharply as investors weighed the impact that Dubai's trouble with $60 billion in debt would have on the global financial and economic recovery.

Market confidence has been hit hard by Wednesday's news that Dubai World, a government investment company, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears, mainly in Europe on Thursday, of a potential default and contagion around the global financial system, particularly in emerging markets.

Asian stocks were particularly badly hit as they played catch-up following the big losses in Europe in the previous session. Hong Kong's Hang Seng closed 1,075.91 points, or 4.8 percent, lower at 21,134.50, while South Korea's benchmark plummeted 4.7 percent to 1,524.50.

In Europe, the FTSE 100 index of leading British shares was down 14.18 points, or 0.3 percent, at 5,179.95, while Germany's DAX fell 13.08 points, or 0.2 percent, to 5,601.09. The CAC-40 in France was 15.02 points, or 0.4 percent, lower at 3,664.21. On Thursday, Europe's main indexes slid over 3 percent, with banks, especially those thought to have exposure to Dubai such as Barclays PLC, HSBC PLC and Standard Chartered PLC, particularly badly hit.

All eyes in Europe will be on Wall Street, which was closed Thursday for the Thanksgiving Holiday. Expectations are that it will open down but that the selling won't turn into a rout — Dow futures were down 236 points, or 2.3 percent, at 10,206 while the broader Standard & Poor's 500 futures slid 31.1 points, or 2.8 percent, at 1,077.80.

"It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course," said Jane Foley, research director at Forex.com.

Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.

"Market cynics have been looking for a correction in the equity market, which has blazed the trail in the past seven months," said David Buik, markets analyst at BGC Partners.

"However they have been unable to find sufficient reasons to nail their flag to the mast, by taking profits, whilst alternative asset classes were unattractive options — well they certainly found an excuse yesterday with the Dubai debt debacle," he added.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 84.81 yen.

However, the dollar climbed back off its lows to 86.46 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan's finance minister Hirohisa Fujii said he was "extremely nervous" about the movements in the yen and that the "market had moved too far in one direction."

On Thursday, the Swiss National Bank reportedly intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. That seems to have worked — for now, at least — as the dollar has moved back above parity, trading 0.9 percent higher at 1.0118 Swiss francs.

The British pound has also been battered amid fears about the exposure of Britain's banks to the region. The pound was down 0.9 percent at $1.6375.

Another currency losing some of its shine was the euro, which fell 0.8 percent to $1.4906 — in times of uncertainty the dollar is considered to be more of a safe haven currency. Investors are also concerned about the exposure of European banks to Dubai.

Elsewhere in Asia, Japan's Nikkei 225 stock average fell 301.72 points, or 3.2 percent, to 9,081.52 while Australia's index dropped 2.9 percent. China's main Shanghai stock measure was off 2.4 percent.

Oil, meanwhile, tracked developments in stock markets and benchmark crude for January delivery fell $3.79 to $74.17 a barrel in electronic trading on the New York Mercantile Exchange.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

2009-11-27 07:41:11