Press Association
Monday 15th March 2010
Stocks slumped on Wall Street amid concerns that Dubai's government-backed investment company risked defaulting on a debt of 60 billion dollar (£36.8bn) ripped through world markets
The Dow Jones industrial average fell 154.48, or 1.5%, to close on Friday at 10,309.92. It was the Dow's biggest daily fall since October 30.
The broader Standard & Poor's 500 index fell 19.14, or 1.7%, to 1,091.49, while the Nasdaq composite index fell 37.61, or 1.7%, to 2,138.44.
The broad retreat from riskier assets pushed Treasury prices higher, while the dollar gained against most other major currencies and commodities tumbled.
The question that will dog investors over the weekend is whether the markets will shrug off a financial crisis in the Middle East or seek protection in more conservative investments. That could end a rally that has seen the Dow surge 57.5% since March 9. Worries about bad debt are fresh in investors' minds after the collapse of the US brokerage Lehman Brothers in September last year kicked the US economy deeper into recession overnight as banks halted lending on fears about the extent of bad loans.
The latest concern is that problems in Dubai, which has drawn wealthy tourists and investors from around the globe in the past decade with its Las Vegas-in-the-Middle East appeal, could imperil a nascent economic rebound around the world. This could happen if banks suffer big losses or confidence falters.
"The biggest risk is a domino effect," said Kevin Shacknofsky, portfolio manager of the Alpine Dynamic Dividend Fund in Purchase, New York.
Analysts were divided over whether Dubai's problems meant more trouble was to come.
Jeffrey Frankel, president of Stuart Frankel & Co in New York, said US investors were given a chance to digest the news with markets closed on Thanksgiving Day. Reports of Dubai's problems surfaced during trading on Wednesday and drew little initial reaction.
"It was like we were in a coma for a day and awoke and the worst had passed," he said.
