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World markets drop on news from Dubai

World stock markets tumbled Thursday after the Dubai government's flagship investment company sought a six-month reprieve on its debt payments and the U.S. dollar continued its slide against other global currencies.

Wall Street was closed for the Thanksgiving holiday and most markets in the Middle East were silent because of a major Islamic feast. But in Europe, the FTSE 100, Germany's DAX and the CAC-40 in France all tumbled more than 3 percent. Earlier in Asia, the Shanghai index sank 3.6 percent, in its biggest one-day fall since August. The slide spread to Asia on Friday, as Japan's benchmark Nikkei 225 index fell more than 2 percent in early trading.

Investors were rattled by a statement Wednesday from Dubai World that it would ask creditors for a "standstill" on paying back its $60 billion debt until at least May, a move that raised question's about the Persian Gulf state's reputation as a magnet for international investment. The company's real estate arm, Nakheel shoulders the bulk of money due to banks, investment houses and outside development contractors.

Dubai became the Gulf's biggest credit crunch victim a year ago. But its ruler, Sheikh Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and claims it overreached during the good times.

When asked about the debt, he confidently assured reporters in a rare meeting two months ago that "we are all right" and "we are not worried," leaving details of a recovery plan -- if such a plan exists -- to everyone's guess.

Dubai's move raised concerns about debt across the Gulf region. Prices to insure debt from Abu Dhabi, Qatar, Saudi Arabia and Bahrain all rose by double-digit percentages Thursday, according to data from CMA DataVision.

Banks bore the brunt of the selling in Europe, amid fears of potential exposure to Dubai. In London, Royal Bank of Scotland was down nearly 8 percent, making it the biggest faller on the FTSE. Deutsche Bank saw the largest drop on the DAX, down around 6 percent.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a 15-month high of $1.5141. By late afternoon in London, the dollar had recouped some ground and was trading at 86.55 yen, down 0.9 percent on the day, while the euro was 1 percent lower at $1.4988.

-- Associated Press