Wall Street retreated on Friday amid a global sell-off as investors fled risk assets on concerns about Dubai's debt rescheduling.
The sell-off was triggered by Wednesday's announcement from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow Dubai World to suspend its debt repayments for six months.
Dubai, which borrowed 80 billion U.S. dollars in a four-year construction boom, suffered the world's steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak.
Dubai World, the flagship investment fund of Dubai, had 59.3 billion dollars in liabilities at the end of 2008, Moody's Investors Service and Standard & Poor's cut their ratings on Dubai state companies this week, saying they may consider Dubai World's plan to delay debt payments a default.
A research note Friday from Credit Suisse said that European banks may be hit hardest if Dubai World cannot meet its obligations. The Swiss bank estimated that European banks could have a total exposure of 19.6 billion U.S. dollars.
Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, while HSBC Holdings Plc has the most at risk in the United Arab Emirates, JPMorgan Chase & Co. said in a report Friday.
Without economic reports, U.S. markets opened sharply lower amid a worldwide sell-off, financial stocks and energy stocks dragged the major indexes lower more than 2 percent in the early morning trading.
The retail sector also was in focus, as stores across the country opened their doors in the early morning hours to start Black Friday sales race.
Black Friday is the traditional make or break day for retailers ' holiday sales. This year, stores are once more hyping door buster discounts
to lure in shoppers, but analysts say retailers have a much better handle on
inventory this year, so the holidays should not bring the red ink seen last year.
Investors, however, will have to wait until sales results from the busy shopping weekend are assessed to get a better read on the strength of U.S. consumers.
The Dow Jones average was down 154.48 points, or 1.48 percent, to 10,309.92. The S&P 500 declined 19.14 points, or 1.72 percent, to 1,091.49 while the Nasdaq was down 37.61 points, or 1.73 percent, to 2,138.44.
In Asia, Japan's Nikkei stock average slid 3.2 percent. Hong Kong's Hang Seng index tumbled 4.8 percent. South Korea's benchmark dropped 4.7
percent. European markets, which fell more than 3 percent Thursday, closed higher after an early slide Friday.