Battered markets recover as Dubai shock eases – for now

Stocks on Wall Street slumped in the brief trading window between the Thanksgiving holiday and the weekend as investors reacted to the global selloff triggered by Dubai’s debt crisis.

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Sharemarkets around the world fell sharply on Friday after Dubai said it wanted a moratorium on debt repayments of Dubai World, its largest government owned business with global interests and heavy exposure to Dubai’s troubled property sector.

Dubai has attempted to restore confidence in financial markets by saying the shock announcement was unintended, but its timing ahead of long holiday weekends in the Middle East and the US left traders in other markets largely in the dark.

It also means Friday trading may not fully reflect the full reaction to Dubai’s plight and that this will not occur until all markets are back to normal next week.

Among key commodities, crude oil neared a six-week low, gold tumbled and the US dollar and Japanese yen soared as investors typically sought safer assets.

In Europe, share prices recovered as buyers moved in on cheaper stocks. This has cushioned declines on Wall Street where the Dow Jones Industrial Average came off a 13-month high.

It initially lost as many as 233 points to 10,231 but closed in the shortened session down 154.48 points, or 1.5%, to 10,309.92. All 30 of the Dow components were in the red, led by Microsoft, off 2%, Caterpillar, off 1.9%, and Exxon Mobil, off 1.8%.

The S&P 500's basic-materials and energy sectors are its weakest categories, off about 2%. All the index's other sectors traded lower, pushing it to a 1.7% decline overall to finish at 1091.49.

The Nasdaq Composite Index was off 1.5%, closing at 2138.44.

European shares advance as investors targeted stocks most affected by Thursday’s selloff, which took indexes down more than 3% in the biggest one-day drop since April.

The pan-European Dow Jones Stoxx 600 rose 1.3% to 242.85 to finish the week with a gain of 0.3%.

Bank shares were particularly hard-hit but regained lost ground. UBS shares climbed 2.8% in Switzerland and UniCredit rose 3.6% in Milan.

The UK FTSE 100 index closed up 1% to 5245.73, the German DAX advanced 1.3% to 5685.61 and the French CAC-40 index gained 1.2% to 3721.45.

Earlier, Asian markets plummeted as the Dubai shock spread. Japan's Nikkei 225 Average fell 3.2% to 9081.52, its lowest close since July.

In Hong Kong the Hang Seng Index plunged 4.8% or 1075 points to 21134.50, led down by banking stocks. HSBC Holdings shares in Hong Kong fell 7.6% and Standard Chartered shares closed down 8.6% on news the banks were directly exposed to Dubai's debt problems.

Commodities: Oil, gold down

Crude-oil futures were at six-week lows. Light, sweet crude for January delivery traded $4.22, or 5.4%, lower at $US73.74 a barrel in New York.

It had touched an intraday low of $US72.39, a 7% fall, and the lowest level since October 12. Brent crude on the ICE futures exchange in London traded $US1.66, or 2.2%, lower at $US75.33 a barrel.

Gold futures trimmed their losses after falling to the lowest level in a week. February gold was down $US13.20 to $US1175.40 an ounce in New York.

Earlier in the week, February gold hit a most-active-record high of $US1196.80 an ounce due to dollar weakness and concerns about eventual inflation.

Currencies: Dollar, yen higher

The US dollar has eased back after earlier gaining strength from the Dubai crisis. Traders view the flight from the euro and other riskier assets as overdone as the worst fears from the Dubai crisis appeared to subside.

During Asian trading, the euro tumbled as far as $US1.4827 and hit a 14-year low of ¥84.82.

But in New York trading, as the week ends, the euro was trading at $US1.4959, down from US$1.5017 late Thursday. The dollar was at ¥86.88, up from ¥86.63, while the euro was at ¥129.98, up from ¥129.74.

The UK pound was at $US1.6501, little changed from $US1.6499.