* Dubai debt worry ripples across markets
* World stocks lower, emerging markets down nearly 2 percent
* European stocks fall 3 percent
* Dollar rises after hitting 14-year low against yen
By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 26 (Reuters) - Debt problems in Dubai hit
financial markets across the board on Thursday, sinking global
stocks, helping lift safe-haven bonds and taking the dollar up
from a 14-year low against the yen.
Gold climbed to a new record high but fell back as the
dollar rose. []
Banking stocks came under pressure because of potential
exposure to any bad debt in the Gulf, as did shares in European
car companies, some of which are part-owned by sovereign wealth
funds from the region.
Markets were also trading without much input from the United
States, where it was the Thanksgiving holiday.
Dubai said on Wednesday it wanted creditors of Dubai World
and property group Nakheel to agree a debt standstill as it
restructures Dubai World, the conglomerate that spearheaded the
emirate's breakneck growth. []
The announcement triggered widespread concern about the
once-booming Gulf region's financial health, although some
investors differentiated between leveraged Dubai and other more
solidly wealthy emirates and countries in the region.
But the worries fed directly into a general nervousness in
financial markets about the real state of the world economy at a
time when investors are also seeking to lock in 2009 profits.
"The Dubai story is weighing heavily on stock markets and
people are looking to safe havens so there's some flight to
quality again," said Charles Berry, a bond trader at LBBW.
Others, such as Royal Bank of Scotland, said Dubai's
bombshell meant investors would now have to "re-appraise the
quality of sovereign support for state-owned entities in the
region."
Dubai sought to ease some concerns about international port
operator DP World <DPW.DI>, saying its debt was not included in
the restructuring.
But markets stayed nervous and the cost of insuring debt
through credit default swaps around the Gulf rose.
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EXPOSURE
MSCI's emerging market stock index <.MSCIEF> was down nearly
2 percent, underperforming the broader all-country world index
<.MIWD00000PUS>, which was down 1.3 percent.
There were sharp losses in Europe, where the pan-European
FTSEurofirst 300 index <> fell 3 percent and was on track
for its biggest daily loss in seven months.
Banks were the biggest drag on the index, but the
interlinking of world finance showed up elsewhere.
Shares in London Stock Exchange <LSE.L> fell as traders
cited concern that Bourse Dubai held a substantial stake in the
company.
Porsche <PSHG_p.DE> and Daimler <DAIGn.DE> also lost ground.
Qatar Investment Authority holds a 10 percent stake in the
former, Aabar Investments from Abu Dhabi and Kuwait own 9.1
percent and 6.9 percent stakes, respectively, in the latter.
"It (the Dubai credit issue) does bring to the fore that
much of what we have seen in the markets really has been
supported by liquidity," said Georgina Taylor, equity
strategist, Legal & General Investment Management.
"It shows how vulnerable the market still is to newsflow,"
she said. "But it should be seen as a country-specific issue.
It's not something systemic. It's about risk appetite."
Within the Gulf, regional bonds sold off.
"Anything from Dubai or Abu Dhabi is getting absolutely
hosed," a bond trader in London said. "There is massive pressure
across the board, exacerbated by the thin liquidity."
Gulf markets are closed for Eid holidays. []
YEN ASCENDANT
The dollar rebounded from a 14-year low against the yen as
traders betting against the dollar seized on the broad risk
reduction prompted by Dubai's debt problems to cash in on its
recent slide.
"Recent news in emerging markets has reverberated around the
market. While much of the moves are going to occur in rates and
credit markets, it is also being reflected in stock markets and
foreign exchange," said Lauren Rosborough, senior strategist at
Westpac in London.
The U.S. currency was up 0.7 percent against a basket of
competitors <.DXY>.
The dollar's earlier fall against the yen came in part
because Japan's deputy finance minister Yoshihiko Noda told
Reuters recent currency moves reflected dollar weakness and
Japan wasn't considering intervening now. []
Euro zone government bond prices were sharply higher. The
yield on two year debt fell 11 basis points <EU2YT=RR>.
Bund futures rose so high they broke out of a trading range
that has been in place since June.
(Additional reporting by Jamie McGeever, Sujata Rao, Simon
Falush and Brian Gorman; Editing by Ruth Pitchford)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
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Hub click on http://blogs.reuters.com/hedgehub)
((jeremy.gaunt@thomsonreuters.com; +44 207 542 1028; Reuters
Messaging: jeremy.gaunt.reuters.com@reuters.net))
