* Dubai debt worry ripples across markets
* World stocks fall, emerging markets down 2 percent
* European stocks down 3.2 pct, worst in 7 months
* Dollar rises after hitting 14-year low against yen
By Jeremy Gaunt, European Investment Correspondent
LONDON, Nov 26 (Reuters) - Debt problems in Dubai struck
financial markets hard on Thursday, sinking global stocks,
lifting safe-haven bonds and driving the dollar higher.
Gold climbed to a new record high but fell back as the
dollar rose []. European shares had their worst daily loss
in seven months.
Banking stocks came under particular 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 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 worries have played a major role in rattling
market sentiment at a time when the U.S. is closed and we are
not getting anything from anywhere else," said Peter Dixon,
economist at Commerzbank.
"It is a day in which market uncertainty has been provoked
again."
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 2.1
percent, underperforming the broader all-country world index
<.MIWD00000PUS>, which was down 1.5 percent.
There were sharp losses in Europe, where the pan-European
FTSEurofirst 300 index <> closed down a preliminary 3.2
percent, 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 and ratings agency
Standard & Poor's placed four Dubai-based banks on negative
outlook.
"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 were closed for Eid holidays. []
DOLLAR RETURNS
The dollar gained sharply as investors shed riskier assets
in the Dubai debt storm.
But the euro was also hit also when France's Economy
Minister Christine Lagarde said that its strength against other
currencies was hurting European exporters. []
It hovered near the day's low of $1.4960 <EUR=>, down 1.1
percent on the day.
The dollar index, a barometer of its performance against six
major currencies, rose 0.9 percent on the day, up from a
15-month low.
Risk aversion also lifted the dollar off a 14-year low
against the Japanese yen.
Euro zone government bond prices were sharply higher. The
yield on two year debt fell 8 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, Brian Gorman and Joanne Frearson; Editing by Ruth
Pitchford)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
((jeremy.gaunt@thomsonreuters.com; +44 207 542 1028; Reuters
Messaging: jeremy.gaunt.reuters.com@reuters.net))
