Dubai debt fears hit world markets hard
Dubai debt fears, dollar slide hit world stock markets hard
* By Pan Pylas, AP Business Writer
* On 11:54 am EST, Thursday November 26, 2009
* Buzz up! 38 * Print
LONDON (AP) -- World stock markets tumbled Thursday as investors fretted over
the debt problems at Dubai World, a government investment company, and the
continuing slide in the dollar, which earlier fell to a 14-year low against the
yen.
AP - A Tokyo money dealer looks at a memo as the U.S. dollar is traded at 86.64
yen on ...
Markets are usually relatively quiet when Wall Street is closed for a holiday,
as it is Thursday for Thanksgiving Day. Not so today, as the rest of the world
digested the stunning news from Dubai that the government's flagship investment
company was in financial trouble.
European markets followed Asia lower with the FTSE 100 index of leading British
shares closing down 170.68 points, or 3.2 percent, at 5,194.13, having been out
of action earlier for over three hours because of technical problems.
Germany's DAX fell 188.85 points, or 3.2 percent, to 5,614.17 while the CAC-40
in France was 129.93 points, or 3.4 percent, lower at 3,679.23.
Sentiment in stocks was dented by the news that Dubai World, which is thought
to have debts totaling around $60 billion, has asked creditors if it can
postpone its forthcoming payments until May. That stoked fears of a potential
default and contagion around the global financial system, particularly in banks
and emerging markets.
"Fear of sovereign default in the Middle East rattled the markets," said Jane
Foley, research director at Forex.com.
Banks bore the brunt of the selling in Europe, amid fears of potential exposure
to Dubai. In London, Royal Bank of Scotland PLC was down nearly 8 percent,
making it the biggest faller on the FTSE. In Germany, Deutsche Bank was the
biggest faller on the DAX, down around 6 percent.
Investors were also keeping a close eye on associated developments in the
currency markets after the dollar slid to a new 14-year low of 86.27 yen, while
the euro pushed up to a fresh 15-month high of $1.5141.
By late afternoon London time, the dollar had recouped some ground and was
trading at 86.55 yen, down 0.9 percent on the day, while the euro was 1 percent
lower at $1.4988.
The continued appreciation in the value of the yen continued to dent Japanese
stocks as investors worry that the rising currency will have a detrimental
effect on the country's exports. Japan's Nikkei 225 stock average fell 58.40
points, or 0.6 percent, to 9,383.24.
Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in
the currency markets are related as the fall in risk appetite has pushed money
into government bonds and into safe haven currencies such as the Swiss franc
and the yen.
This, he said, is "testing the tolerance of central banks to see their
currencies cause further damage to their economies."
Already there have been unconfirmed reports that the Swiss National Bank has
intervened to buy dollars to prevent the export-sapping appreciation of the
Swiss franc.
Meanwhile, Japanese Finance Minister Hirohisa Fujii tried to assure the market
he was closely monitoring the situation and would "take appropriate steps if
foreign exchange rates move abnormally." But that did little to ease investor
worries.
Across all markets, there is a growing awareness that investors may use the
upcoming year-end to lock-in whatever profits have been made over the last 12
months.
Gold has been one of the biggest high-flyers over the last few months, having
gained over 10 percent in November alone. It continued to rise Thursday as
investors bought it up as a safe haven.
It hit a new record high earlier of $1,196.8 an ounce, before falling back
modestly. By late afternoon London time, gold was down 0.4 percent at $1,182.50
an ounce.
Oil also fell alongside stocks -- the two have traded alongside each other for
much of this year. Benchmark crude for January delivery was down $1.85, or 2.4
percent, at $76.11 a barrel. On Wednesday, it rose $1.94.
Earlier in Asia, the Shanghai index tanked 119.19 points, or 3.6 percent, to
close at 3,170.98, its biggest one-day fall since August 31, while Hong Kong's
Hang Seng shed 1.8 percent to 22,210.41.
Elsewhere in Asia, markets in Australia, Singapore, Taiwan and Indonesia closed
lower.
AP Business Writer Jeremiah Marquez contributed to this report from Hong Kong.
