European shares buck global selloff

U.S. and Asian markets fall hard as investors fret about Dubai's state-owned investment fund. But European markets recover to post solid gains.

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By Ben Rooney, staff reporter

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NEW YORK ( -- Stock markets in Europe closed higher Friday, despite ongoing concerns about a possible loan default by Dubai's state-owned investment fund, which sent Asian and U.S. markets sharply lower.

Financial markets around the world were rattled this week when Dubai World, the emirate's state-run investment vehicle, requested a postponement of payments it owes on a $60 billion debt load. (See correction below).

But some analysts said Friday's rebound in European shares, which plunged in the previous session, suggests the market's reaction to the Dubai news was overdone.

"It's not exactly the end of the world," said Dave Babbs, head of trading at MF Global Spreads in London, adding that Thursday's selloff was "a slight over-reaction, but a much needed correction."

Still, investors in the United States, who were off Thursday for the Thanksgiving holiday, were not taking any chances. All the major U.S. indexes ended Friday's holiday-shortened session more than 1% lower.

The retreat on Wall Street came after Asian shares fell sharply overnight. Japan's Nikkei closed down 3.2% and the Heng Seng in Hong Kong tumbled nearly 5%

The dollar and the yen rose against rival currencies as investors flocked to perceived safe-haven assets.

The stronger dollar and credit concerns weighed on the commodities markets. Oil prices plunged 5%, while gold prices tumbled more than $18 per ounce.

The Dubai World news "brought the credit crunch back after we thought we left it behind last year," said David Jones, chief market strategist at IG Markets in London.

"Things like this remind us that the economic recovery isn't going to be smooth," he added.

Dubai, which is one of seven emirates that make up the United Arab Emirates, borrowed billions over the last several years to fuel an extravagant construction boom.

But the emirate was hit hard by the credit crunch and investors are concerned about the possible fallout if Dubai World is forced to liquidate assets at fire-sale prices. That could put many big British banks, which have the most exposure to the region, at risk.

Richard Bove, a prominent banking analyst at Rochdale Research, said other Arab states, including Abu Dhabi, will likely come to Dubai's aid if the fund were to default on its debt. "However, if this takes months there will be financial upset everywhere," he wrote in a research report.

An earlier version of this article incorrectly described Dubai World. To top of page

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