Dubai debt fears drag European shares lower

Dubai debt fears drag European shares lower

Frankfurt: European shares fell further on Friday, a day after posting their biggest one-day drop in seven months, as concerns about contagion from Dubai’s debt crisis curbed investors’ appetite for riskier assets.

By 0922 GMT, the FTSEurofirst 300 was down 0.3% at 984.99 points but trimmed earlier losses, having been down as much as 1.7%.

The index is up 53% from its lifetime low of 9 March and has gained 19% in the year-to-date.

Japan’s Nikkei hit a 4-month closing low on Friday, two days after Dubai, part of the oil-exporting United Arab Emirates, said it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt.

“We are facing day one after the ‘Dubai-shock’, but unfortunately this effect seems not to be over yet," said Roger Peeters, strategist at Close Brothers Seydler.

“How will the US market ... react on the development in the Middle East? Perhaps the answer to this question will not be given today."

Wall Street was closed on Thursday for the Thanksgiving holiday, and Friday’s trading session will end early at 1 pm local time (1800 GMT).

Oils fall, Carphone up

Oil and gas producers dropped, with crude oil down 5.4%. The DJ STOXX European Oil & Gas Index fell 1.2%. BP, ENI, Royal Dutch Shell, Petroplus and Statoil were all down 0.9 to 1.3%.

Pharma stocks also fell, with Sanofi-Aventis, BASF, Roche and Fresenius SE down 0.2 to 1.6%.

On the upside, a number of banks rebounded from the previous session’s slump. Natixis, Deutsche Bank and BNP Paribas were up 1.3 to 2.2%.

JP Morgan analysts said there was less concern for global banks regarding Dubai World’s direct $59 billion debt. They saw more risk coming from spillover effects within the United Arab Emirates with CDS spreads.

“Overall we would argue the UAE direct loan exposure risk is to some extent over-discounted within global banks except for some selective banks," JP Morgan analysts wrote in a note.

Britain’s Carphone Warehouse gained 1.6% after raising its full-year earnings forecast and saying it was on track to split in two by the end of March 2010.

Across Europe, France’s CAC, Germany’s DAX and Britain’s FTSE 100 were all 0.1-0.3 percent lower.