NEW YORK — Worries about Dubai World’s debt woes shook investors’ confidence Friday, precipitating a sell-off in financial stocks and commodities, while the dollar and the Japanese yen rose as traders sought out safe havens.
With Wall Street closed Thursday for the Thanksgiving holiday, European and especially Asian markets took the brunt of the losses, as Japan’s Nikkei lost 3.2 percent and Hong Kong’s Hang Seng index tumbled 4.8 percent.
But after losing more than 230 points at the opening, the Dow Jones industrial average finished Friday’s short session with a loss of 154.48 points, or 1.5 percent, at 10,309.93.
By the early U.S. close, the broad S&P 500 index still fell 19.14, or 1.7 percent, to 1,091.49, with the financial sector of the S&P hit the hardest, off 2.7 percent. Also hit were the energy and materials sectors, off 2.5 percent and 2.4 percent, respectively. The Nasdaq dropped 37.61, or 1.7 percent, to close the week at 2,138.44.
Crude futures closed moderately lower after tumbling to a seven-week nadir earlier in the session, as investors eased off on fearful trading as the shortened day wound down.
Gold futures earlier fell by more than 5 percent, but finished down just 1 percent.
The selling came in the wake of news that Dubai World, the Persian Gulf emirate’s main conglomerate, has asked creditors for a six-month stay on debt repayments of $60 billion. Investors weighed potential exposures to the debt in question.
Dubai World, which has interests in industries ranging from real estate and finance to leisure, has become synonymous with grandiose building projects such as the World, a development of 300 man-made islands in the shape of the world’s continents.
But “does the $60 billion default by Dubai World pose a systemic risk to the global financial system? No. It should be viewed as a momentary setback in the ongoing recovery of global capital markets,” wrote Bernard Baumohl, chief global economist with the Economic Outlook Group, in a note.
His firm took some defensive steps such as selling gold and buying dollars. Baumohl expects Dubai’s financial crisis to be resolved early this week. “We’re expecting oil-rich Abu Dhabi to help bail out its cash-strapped sister emirate, Dubai,” by then, he said.
Earlier in the day, Neil Mellor, a strategist at the Bank of New York Mellon, said risk aversion was “back with a vengeance,” as the Dubai World woes resonated across financial markets.
“Today could ultimately constitute a conspicuous date on the post-crisis calendar,” he wrote in a note. “In truth, however, this rather depends on just what we are witnessing: the next, dramatic stage in the global credit crisis — or a suitable catalyst for bull-market retrenchment that has already been under way in many markets these past few weeks.”
Confidence is a key factor for markets, as hopes had risen that economies were starting to emerge from the severe global recession.
