Asian and Pacific investors today face uncertainty in their sharemarkets as Dubai's debt crisis raises fears that global economic recovery from recession could be stalled.
United States stocks dropped in an abbreviated session after Wall Street returned from Thursday's Thanksgiving holiday.
Future indices were yesterday indicating a further fall in global sharemarkets was possible this week.
The Dow Jones Industrial Average fell nearly 1.5% on Friday (US time) to 10,309, with all 30 Dow components ending in the red after the blue-chip index closed at its highest level on Wednesday since October last year.
The technology-rich Nasdaq dropped 1.73% and the broader Standard and Poor's 500 retreated 1.72%.
The cause of the drop was Dubai's request for a delay on debt payments.
Asian and European markets tumbled on the debt announcement.
Charles Schwab and Co analysts said in a market note that the announcement was sparking concerns about the financial health of the emerging markets and the impact on developed nations' exposure to the debt on Dubai.
Debt had surged as the region had gone through a massive construction boom.
The Hong Kong market slumped nearly 5% on the news.
The US dollar struck a 14-year low against the yen but was higher than other currencies amid a flight from risk.
World leaders over the weekend expressed confidence in the global economic recovery despite fears about a debt default by Dubai, while major banks played down their exposure to the debt.
Moody's Investor Service said ratings on banks in the United Arab Emirates were already on review and that no immediate downgrades were expected in light of Dubai's debt crisis.
The banks with significant exposure to the city-state's crisis were already on review or carried a negative outlook on their deposit ratings, Moody's said in a release.
Dubai World, a government investment company with about $US60 billion ($NZ85.4 billion) worth of debt, has asked creditors if it can postpone forthcoming payments until May.
The worries are centred on fears that some banks could further tighten lending, which could in turn stall the global economic recovery.
Also of concerns is that international banks could suffer big losses if Dubai's investment arm defaulted on its $US60 billion debt.
But Moody's said that if the repercussions remain confined to exposures to Dubai World and its subsidiary, Nakheel, banks in the United Arab Emirates would likely be able to absorb any fallout.
The UAE banks that were already on review for downgrade were Emirates NBD, Mashreqbank and Dubai Islamic Bank.
All were based in Dubai.
Moody's said it would monitor developments and review ratings as the situation developed.
Ratings reviews were expected to be completed over the next few weeks.
In recent years, Dubai has expanded with ambitious projects like the Gulf's palm-shaped islands and the world's tallest skyscraper.
In the process, the state-backed networks nicknamed Dubai Inc. have racked up $US80 billion in red ink.
