Dubai World’s investment arm, Istithmar, lost control of a flash Manhattan hotel and bonds in six state-controlled companies tumbled to record lows as the emirate's debt crisis continues.

The trendy W Hotel Union Square was one of Dubai World’s prize properties – other hotels in New York are the Knickerbocker and Mandarin Oriental, while another is the new W in Washington DC.

The heavily indebted New York W sold for a bid of just $US2 million at a foreclosure auction, though it cost Istithmar more than $US280 million in 2006 at the height of the property cycle.

Earlier this week, Dubai World signalled it would be forced to sell other assets as part of a plan to restructure its $US59 billion in debt. It also owns Cirque de Soleil and the Turnberry golf course in Scotland, though its global ports and logistics businesses are not for sale.

Dubai shares tumbled for a third day, erasing all of this year’s gains. Moody’s Investors Service downgraded six government-controlled entities, including Emaar Properties, the United Arab Emirates’ biggest developer.

The DFM General Index tumbled 6.4%, to 1533.36. It has lost 27% since the November 25 “standstill” announcement triggered the debt crisis and is the world’s worst performing sharemarket this quarter.

Earlier, Dubai’s index had gained 28% in the year to November 25.
Other Gulf sharemarkets have shared in the loss of confidence. Abu Dhabi’s index fell 2.8% to 2467.04, the lowest level since April.

Oman’s MSM30 Index declined the most since April, losing 4% and Qatar’s Doha Securities Market Index dropped 2%.

Saudi Arabia’s Tadawul retreated the most since October 31, losing 2.4%. Bahrain’s benchmark index slipped 0.7% and the Kuwait Stock Exchange Index dropped 0.3%.