* Investor fear rise on weak economic recovery; rating cut
* Bank shares fall on worries Dubai debt problem
* Dollar rises on flight-to-safety trade
* Gold, oil weaken on dollar's strength
By Manuela Badawy
NEW YORK, Dec 8 (Reuters) - Risk aversion swelled on
Tuesday driving global stocks down as worries over Dubai's debt
problems hit bank shares and the dollar rose against the euro
after Fitch Ratings agency downgraded Greece's credit.
Investors retreated from riskier emerging markets and
higher yielding currencies, as officials dithered over a rescue
for debt-laden state conglomerate Dubai World [] and
ratings agency Moody's downgraded government-related debt.
Moody's cut the ratings of six Dubai-linked issuers after
concluding that no "meaningful" government support would be
provided for top firms like DP World <DPW.DI>. []
"Investors have been reminded there are many issues out
there - the Dubai World and the Greek downgrades - it suggests
there are still many potential nasties out there," said Peter
Dixon, economist at Commerzbank.
The Dow Jones industrial average <> closed down 1.00
percent, at 10,285.97. The Standard & Poor's 500 Index <.SPX>
fell 1.03 percent, at 1,091.94, and the Nasdaq Composite Index
<> weakened 0.76 percent, at 2,172.99.
Investors' fears rose sharply amid concerns about obstacles
still facing the global economy. The Volatility Index <.VIX>,
Wall Street's main barometer of investor fear, rose 7.19
percent. A rise in the so-called VIX index indicates worsened
investor sentiment.
The dollar rose against the euro for the third straight
session and the yen also rose broadly as investors reduced
yen-funded "carry trades," while Moody's Investors Service
stoked unease when it said fiscal crises in a number of
top-rated countries could last for "several years."
Carry trades involve borrowing the U.S. currency at low
rates to finance purchases of high-yielding assets.
"Prospects for sovereign downgrades are really creating a
bearish backlash in the market right now," said Andrew
Wilkinson, senior analyst at Interactive Brokers' Group in
Greenwich, Connecticut.
The dollar rose against a basket of currencies, with the
U.S. Dollar Index <.DXY> up 0.6 percent at 76.218. The euro
<EUR=> fell 0.81 percent at $1.4699. Against the Japanese yen,
the dollar <JPY=> fell 1.32 percent at 88.33.
European share prices fell, led by banks, as worries
continued to percolate over their exposure to the debt woes for
Dubai World and Greece's credit rating downgrade by Fitch
Ratings.
The pan-European FTSEurofirst 300 <> index of top
shares closed down 1.6 percent at 1,004.41 points and hit a
one-week low of 999.71. The index is up 56 percent since
reaching a record low in early March and is up about 21 percent
for the year.
The Fitch downgrade also undermined risk taking, fueling
the rise in the U.S. dollar for safety's sake which had the
effect of putting downward pressure on commodity prices.
Spot gold <XAU=> prices fell $27.30, or 2.36 percent, to
$1130.60 a three-week low as a resurgent dollar and risk-averse
sentiment sent skittish bullion investors scrambling to cut
positions.
The price for a barrel of crude oil fell $1.25 or 1.69
percent, to $72.68 on the back on the rise of the dollar and
worries about the strength of the economic recovery.
MSCI emerging market stock index <.MSCIEF> slid 1.14
percent. Dubai's share index <> was among the biggest
losers, falling 6.1 percent to a 21-week closing low.
Meanwhile, U.S. Treasury prices rose heartened by the
realization that despite last week's improved jobs report for
November, the Federal Reserve would not be in a hurry to raise
interest rates.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
8/32, with the yield at 3.3991 percent.
(Additional reporting by Daniel Bases; Editing by Kenneth
Barry)
