NEW YORK – (UPDATE) The Dubai debt crisis roiled world markets again Friday as fears of debt defaults sparked concern that a recovery from global recession could stall.
"Dubai's request late Wednesday to delay debt payments rattled markets around the world and raised concerns that defaults may stall a global recovery," said Scott Marcouiller of Wells Fargo Advisors.
On Wall Street, the Dow Jones Industrial Average fell 154.48 points (1.48 percent) to 10,309.92 as the market reopened from Thursday's Thanksgiving holiday.
All 30 Dow components ended in the red; the blue-chip index had closed Wednesday at its highest level since October 2008.
"The news has been rattling world markets since Wednesday night, and US equities fell victim to the spreading panic first thing this morning," said Elizabeth Harrow of Schaeffer's Investment Research.
The tech-heavy Nasdaq composite slid 37.61 points (1.73 percent) to 2,138.44 and the broad-market Standard & Poor's 500 retreated 19.14 points (1.72 percent) to 1,091.49.
The Dow pared sharp opening losses of more than 200 points as investors digested news that Dubai World, the city state's flagship conglomerate, is seeking a six-month moratorium on repayment of $59 billion in debts.
"Dubai World, the de facto sovereign fund for the desert nation, has essentially defaulted on a large part of its debt," said Douglas McIntyre of 24/7 WallSt.com.
The announcement "is sparking concerns about the financial health of the emerging markets and the impact on developed nations' exposure to the debt of Dubai, which surged as the region has gone through a massive construction boom in the past few years," Charles Schwab & Co. analysts said in a client note.
The Dubai grenade rocked Asian markets for a second day, with Hong Kong slumping almost five percent by the close. Tokyo dived 3.22 percent, hit also by the yen gaining against the dollar which hurts Japanese exporters.
European markets rebounded from sharp opening losses. London's FTSE 100 index closed 0.99 percent higher at 5,245.73 points after losing more than three percent on Thursday along with Frankfurt and Paris.
Frankfurt's DAX rose 1.27 percent to 5,685.61 points and the Paris CAC 40 gained 1.15 percent at 3,721.45.
The dollar struck a 14-year low against the yen but was broadly higher against other currencies amid a flight from risk.
Wall Street volumes were light as many traders were absent for the holiday-shortened session that closed at 1:00 p.m. (1800 GMT). No economic reports were released.
The two foreign banks with the heaviest exposure to Dubai – HSBC and Standard Chartered – saw their shares fall sharply in Hong Kong before recovering in London.
HSBC closed 0.10 percent higher and Standard Chartered gained 0.40 percent. Earlier in Hong Kong HSBC dropped 7.6 percent and Standard Chartered fell 8.6 percent.
On Wall Street, the S&P banking index shed 2.57 percent.
Citigroup slid 2.64 percent to 4.06 dollars. Citi is reportedly the US bank most exposed to the United Arab Emirates, a federation of Abu Dhabi, Dubai and five other city states.
Bank of America fell 3.01 percent to $15.47, JPMorgan Chase slid 1.97 percent to $41.33 and Goldman Sachs tumbled 2.82 percent to $164.16.
Analysts at Exane BNP Paribas said that "so far the situation in Dubai seems contained, but a rise in government bond yields due to a higher risk premium because of soaring budget deficits is one of the main risks" for 2010.
