European stocks down as Dubai debt worries linger

[November 30, 2009]  LONDON (AP) -- European stock markets fell again Monday amid concerns about Dubai's debt problems, even though the United Arab Emirates' central bank pledged to make extra funding available to all banks in the country, including foreign institutions with local branches.

In Europe, the FTSE 100 index of leading British shares was down 40.95 points, or 0.8 percent, at 5,204.78 while Germany's DAX fell 55.15 points, or 1 percent, to 5,630.46. The CAC-40 in France was 51.02 points, or 1.4 percent, lower at 3,670.43.

Earlier, Asian markets rebounded by around 3 percent after tumbling heavily on Friday, when European and U.S. stock markets had regained their poise.

Investors in Europe, however, continued to worry about the fallout from Dubai World's announcement last week that it wanted to postpone forthcoming debt payments until May. Much of the $60 billion debts held by the government investment company are thought to be with European banks, particularly those in Britain.

The worry in the market is that Dubai's problems may be a harbinger of things to come, even though the announcement from the UAE central bank may minimize the risk of contagion.

"It is a warning sign that sovereign credit risks are likely to remain a problem -- Ireland, Greece and Britain, for example -- and the deterioration in budget deficits and debt/GDP ratios will remain a key feature for some time," said Neil Mackinnon, global strategist at VTB Capital.

All eyes will be on Wall Street when it opens later, as many U.S. investors were out of the office for Thanksgiving celebrations when the Dubai news broke.

At the moment, U.S. stocks are poised for a steady opening -- Dow futures were down 22 points, or 0.2 percent, at 10,270 while the broader Standard & Poor's 500 futures fell 2.3 points, or 0.2 percent, to 1,087.20.

"We are likely to see a lack of direction ahead of the US open and a steady session on Wall Street should ensure that markets return to normality for the rest of the week," said Tim Hughes, head of sales trading at IG Index.

If, and when, the Dubai concerns diminish, investors have a raft of economic news this week to digest, which could well be crucial in how markets end the year.

Friday's U.S. nonfarm payrolls report for November will be key -- the data often sets the tone in markets for a week or two. However, there are other important U.S. releases due, including the Institute for Supply Management's surveys into the services and manufacturing sectors.

If investors conclude that the U.S. economy is losing some steam, then that could well pave the way for an end of year bout of profit-taking following an eight-month bull run.

Earlier in Asia, nearly every market traded higher, with Japan's Nikkei 225 stock average climbing 264.03 points, or 2.9 percent, to 9,345.55. Hong Kong's Hang Seng added 687.00 points, or 3.3 percent, to 21,821.50 and South Korea's Kospi added 2 percent to 1,555.60. Both those markets tumbled nearly 5 percent on Friday.

Elsewhere, Shanghai's market climbed 3.2 percent, Australia's index was 2.8 percent higher and Taiwan's benchmark rose 1.2 percent.

One market that ended sharply lower was Dubai's itself, which dropped nearly 6 percent.

Elsewhere, oil prices steadied, with benchmark crude up 30 cents at $76.35 a barrel, but gold lost 0.6 percent of its value to trade at $1,166.90 an ounce.

The dollar fell 0.4 percent to 86.32 yen, while the euro rose 0.3 percent to $1.5049.

[Associated Press; By PAN PYLAS]

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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