Thursday, November 26, 2009 7:06 AM
Dubai debt fears hit world markets hard
Globe and Mail Staff
World stock markets fell sharply Thursday as investors fretted over the debt problems at Dubai World, a government investment company, and the continued fall in the dollar.
Markets are usually relatively quiet when Wall Street is closed for a holiday, as it is Thursday for Thanksgiving Day – not so today.
In Europe, the FTSE 100 index of leading British shares was down 99.84 points, or 1.9 per cent, at 5,264.97, although trading has been halted for over an hour because of technical problems. Germany’s DAX fell 115.17 points, or 2 per cent, to 5,687.85 while the CAC-40 in France was 84.92 points, or 2.2 per cent, lower at 3,724.24.
Earlier in Asia, the Shanghai index tanked 119.19 points, or 3.6 per cent, to close at 3,170.98, its biggest one-day fall since August 31, while Hong Kong’s Hang Seng shed 1.8 per cent to 22,210.41.
Sentiment in stocks has been dented by the news that Dubai World, which is thought to have debts totalling around $60-billion, has asked creditors if it can postpone its forthcoming payments until May. That has stoked fears of a potential default and contagion around the global financial system, particularly in emerging markets.
“Certainly the Dubai debt debacle and the uncertainty that it has created has had a severe knock on effect,” said David Buik, markets analyst at BGC Partners.
Investors were also keeping a close eye on developments in the currency markets as the dollar slid to a new 14-year low of ¥86.27, while the euro pushed up to a fresh 15-month high of $1.5141. By late-morning London time, the dollar had recouped some ground and was trading at ¥86.75, down 7 per cent on the day, while the euro was 0.3 per cent lower at $1.5094.
The continued appreciation in the value of the yen continues 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 per cent, to 9,383.24.
Oil fell towards $77 on Thursday in line with falls across financial markets and as weak demand for fuel offset potential support from a weak dollar.
Gold fell from a record high hit earlier on Thursday as the dollar rebounded from its lows, but the market was still expected to seek higher ground due to prospects for central bank buying and further dollar weakness.
Spot gold hit a record high of $1,194.90, but had retreated to $1,182.70 an ounce by 1023 GMT versus its last quote of $1,190.30 in New York late on Wednesday.
“The sentiment towards gold is still very positive,” said Suki Cooper, analyst at Barclays Capital. She cautioned however that prices could be subject to a short term correction.
Bullion has gained more than 37 per cent this year – including a 13-per-cent rise in November alone on dollar weakness, expectations of further reserve diversification by central banks and fears of inflation next year.
Late on Wednesday, the International Monetary Fund said it had sold 10 tonnes of gold to the Central Bank of Sri Lanka, a part of the 403.3 tonnes approved for sale by the fund’s executive board in September. The fund has already sold 202 tonnes to the central banks of India and Mauritius.
