US stock futures tumble on fears over Dubai debt

By TIM PARADIS

posted: 1 HOUR 6 MINUTES AGO

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NEW YORK -U.S. stock futures plunged Friday as a wave of fear swept through world markets over concerns that financial trouble in the Middle Eastern city-state of Dubai will upend a global economic recovery.

Stock futures fell more than 2 percent and Treasury prices jumped sharply. The dollar gained against most other major currencies as investors sought safety following steep drops in overseas markets Thursday and again Friday. Commodities prices tumbled.

U.S. markets were closed Thursday for Thanksgiving.

Investors are worried that a default by a government investment company in Dubai over $60 billion in debt payments could have a ripple effect in world financial markets. The fear is that losses in the small emirate, which has drawn wealthy tourists from around the globe in the past decade with its Las Vegas-in-the-Middle East appeal, could imperil a nascent economic rebound.

Worries about bad debt are fresh in investors' minds after the collapse of the U.S. brokerage Lehman Brothers in September last year pushed the world overnight deeper into recession as banks halted lending on fears of a domino effect of bad loans.

The latest trouble on Wall Street come as the U.S. kicks off the unofficial start to the holiday shopping season. Investors will be tracking news from retailers for insights into how much consumers will spend in the coming month. Consumer spending is the biggest driver of the U.S. economy.

Dow Jones industrial average futures are down 222, or 2.1 percent, at 10,220. Standard & Poor's 500 index futures are down 29.20, or 2.6 percent, at 1,079.70. Nasdaq 100 index futures are down 47.25, or 2.6 percent, at 1,747.00.

Trading volume had been expected to be light ahead of a shortened trading session. Light volume could trigger volatility. Stock markets close three hours early, at 1 p.m. EST. Bond markets close a 2 p.m.

Investors rushed into the safety of U.S. government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.22 percent from 3.28 percent late Wednesday. The yield on the three-month T-bill rose to 0.04 percent from 0.03 percent.

The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, rose 0.6 percent. The yen, also a safe-haven currency, was higher, hitting a 14-year high against the dollar.

Commodities, which are priced in dollars, fell as the dollar gained. The move reflected an unwinding of trades that relied on a weak dollar to finance purchases of higher-yielding assets. Spooked traders reversing the so-called "carry trade" were demanding safe-haven assets.

Light, sweet crude fell $3.68 to $74.28 in electronic trading ahead of the open of the New York Mercantile Exchange.

European markets, which fell more than 3 percent Thursday, pulled off their worst levels Friday. In afternoon trading, Britain's FTSE 100 fell 0.5 percent, Germany's DAX index fell 0.5 percent and France's CAC-40 fell 0.3 percent.

In Asia, Japan's Nikkei stock average slid 3.2 percent. Hong Kong's Hang Seng index tumbled 4.8 percent. South Korea's benchmark dropped 4.7 percent.

2009-11-27 07:27:04