LONDON — Global equities slumped Thursday, with Europe down three percent after Dubai's shock call to suspend the debt of a key state company fuelled anxiety about excessive public borrowing, analysts said.
The government of Dubai shocked financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.
The request "fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt," said Xavier de Villepion, an analyst with Global Equities in Paris.
London's FTSE index of leading shares closed 3.18 percent lower at 5,194.13 points. The market was earlier forced to suspend trading for three and a half hours due to a technical hitch.
Frankfurt's DAX index fell 3.25 percent to 5,614.17 points and in Paris the CAC closed 3.41 percent lower at 3,679.23, with major banks suffering all round. In Paris Societe Generale shed 5.48 percent to 45.62 euros.
"If (Dubai) had given the debt markets more warning, then there would be less of a panic now," David Morrison, an analyst at financial betting firm GFT, told AFP.
"It's causing a mini flight-to-quality as US, European debt gets bought as a relative safe haven."
New York markets were closed Thursday for the Thanksgiving Day holiday in the United States.
In Asia, Shanghai nosedived 3.62 percent, Tokyo fell 0.62 percent and Hong Kong lost 1.78 percent. Chinese shares were also hit by the prospect of tighter banking rules and worries about monetary policy next year.
Elsewhere in Europe, Madrid fell 2.58 percent to close at 11,657.5 points. Brussels fell 3.08 percent to 2,426.40 and Milan closed 3.60 percent lower at 21,922.
Amsterdam fell 3.62 percent to 306.72 and the Swiss Market Index fell 2.16 percent to 6,283.38.
As equities sank heavily, investors sought safety in the bond market and gold, which struck yet another record high point.
Dubai announced that it would revamp Dubai World, the government holding group behind major building projects in the desert state, and wanted its lenders to extend its maturing debt until at least May 2010.
It added that it had raised five billion dollars in a new bonds issue aimed at helping meet other debt obligations.
Ratings agency Standard & Poor's classified the development as a default and downgraded a raft of Dubai government entities including Dubai World.
"The rating actions are the result of the announcement on November 25 of the restructuring of the debt obligations of Dubai World and its subsidiary, (property developer) Nakheel," S & P said in a statement.
"In our view, such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government to provide timely financial support to a core government-related entity."
Several major economies have emerged from recession in recent months, but experts have warned of risks to recovery, partly from the debts accumulated in tackling the downturn.
Barclays Capital analyst Paul Robinson warned that the issue of Dubai could contribute towards a "serious" pullback in global stock markets.
Others warned that it could take more than a decade for investor enthusiasm for the Gulf emirate to return as a result of this week's development.
"Dubai could not undermine either itself, or global perception any further as a place not to do business in at the moment," MF Global analyst Manus Cranny told AFP.
"It is the much longer term implications on funding, confidence and capital raising that will take a decade or more to re-establish."
Elsewhere on Thursday, gold soared to a record high of 1,195.13 dollars an ounce after a purchase of IMF gold by Sri Lanka's central bank, traders said.
The precious metal has also won support in recent weeks from inflationary fears, the weak US currency and increasing moves by central banks to diversify assets into gold.
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