(Updates with U.S. markets, comments)
* MSCI world equity index falls 1 pct on Dubai concerns
* U.S. stocks pare losses after steep drop at open
* Dollar gains; yen loses ground after BoJ checks rates
By Al Yoon and Atul Prakash
NEW YORK/LONDON, Nov 27 (Reuters) - Dubai debt default
concerns rippled through world markets for a second day on
Friday, but the exodus from equities and rush to the safe-haven
dollar slowed as investors discounted contagion.
U.S. stocks initially fell more than 2 percent New York,
the first day of trading after Dubai on Wednesday said it would
ask creditors of two flagship firms, including conglomerate
Dubai World, for a standstill on debt payments as part of a
restructuring. For details, see [].
The potential magnitude of the event, measured by Dubai
World's $59 billion in debt, unhinged markets on concern that
the hangover from the credit-driven property boom may hold more
harsh surprises for banks. U.S. and European stocks edged off
lows or rose later in trading, however, signaling some
investors expected the event would not derail a recovery.
"What we've seen is that once the dust settles, some of the
markets that were hardest hit have rebounded," said David
Katz, chief investment officer at Matrix Asset Advisors in New
York. "It's a scare to the markets, but the U.S. has less
exposure to Dubai than Middle Eastern and European banks."
The MSCI world equity index <.MIWD00000PUS> fell 0.8
percent after tumbling 1.3 percent to its lowest in 2-1/2
weeks, with the benchmark on track for a second consecutive
weekly loss.
The MSCI since October has had trouble extending the rally
that began in March as investors have raced to lock in gains
ahead of year-end accounting. The index is still up about 70
percent since early March.
Dubai struggled to ease fears of debt default by saying on
Thursday its profitable DP World <DPW.DI>, which runs 49 ports
around the world, would not be involved in the restructuring.
DP World, which has $3.25 billion outstanding bonds, is
majority owned by Dubai World but has shares listed on
NASDAQDubai. []
The emirate is a center for investment and a major source
of capital for Western markets.
U.S. indexes almost halved early losses. The Dow Jones
Industrial Average <> fell 134.83 points, or 1.29 percent,
to 10,329.57. The Standard & Poor's 500 Index <.SPX> slid 1.40
percent to 1,095.07 and the Nasdaq Composite Index <>
declined 1.39 percent to 2,145.84.
European shares rose. The FTSEurofirst 300 <> index
of top European shares rose 1.55 percent to 1,003.47, after
falling more than 3 percent on Thursday.
Investor appetite for risky assets bounced from a 23
percent drop on Thursday, with the VDAX-NEW volatility index
<.V1XI> down 3.3 percent. The higher the index, which is based
on sell and buy options on Frankfurt's top 30 stocks, the lower
the market's desire to take risk.
The U.S. market volatility index <.VIX> declined 9 percent
from its open, but at 23.61 remained 15 percent above its close
on Wednesday. U.S. markets were closed on Thursday for the
Thanksgiving Day holiday.
In currencies, the dollar rose as fears of a possible Dubai
debt default sent investors into safe havens. The dollar rose
against a basket of major currencies <.DXY>, up 0.15 percent at
74.938.
"A combination of systemic risk fears and thin market
liquidity due to the U.S. holiday season has proven to be a
combustible mix and several currencies or currency blocs are
feeling the impact," UBS currency analysts wrote in a note.
"The wider fallout has simply revealed how fragile both
markets and risk appetite still are," they said.
The yen hit a 14-year high against the dollar before
retreating when the Bank of Japan stepped close to currency
intervention by checking exchange rates with commercial banks.
The dollar <JPY=> climbed 0.34 percent to 86.77 yen, while the
euro <EUR=> fell 0.23 percent at $1.4976.
Commodity prices extended previous session's steep losses,
with crude oil <CLc1> under pressure. U.S. light sweet crude
oil fell $2.66, or 3.41 percent, to $75.30 per barrel. Spot
gold <XAU=> fell $18.70, or 1.57 percent, to $1173.90.
Euro zone government bonds and U.S. Treasuries rose in
other flight-to-quality trades. The benchmark 10-year Treasury
note <US10YT=RR> yield declined 0.03 percentage point to 3.24
percent, the lowest on a closing basis since Oct. 7.
(Additional reporting by Ryan Vlastelica in New York, Jamie
McGeever, Simon Falush and Natsuko Waki in London and Blaise
Robinson in Paris; Editing by Kenneth Barry)
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