* MSCI world equity index down 1.3 pct at 291.37
* Dubai fears fuel risk aversion, shares tumble around world
* Yen surges to 14-year high vs dollar; bonds firmer
By Natsuko Waki
LONDON, Nov 27 (Reuters) - Fears about a global contagion
from Dubai's debt crisis triggered a broad sell-off of world
shares, oil and other assets on Friday, fuelling flows into the
low-yielding yen and safe-haven government bonds.
The crisis flared on Wednesday when the government of Dubai
said it wanted to delay payment on billions of dollars of debt
issued by conglomerate Dubai World and its property arm Nakheel.
Concerns about the exposure of banks worldwide to Dubai's
total debt of $80 billion fanned fears that their recovery from
the credit crisis might stall and the global economy might dip
into another recession.
"It's absolute paranoia. This is the last thing the market
needed in the run up to Christmas," said Manus Cranny, head of
sales at MF Global. "It's not just the Dubai debt, investors are
wondering what other black holes there are and what the
ramifications are for global companies."
Exposure to Dubai World could be as high as $12 billion in
syndicated and bilateral loans, including existing loans for
Nakheel and Istithmar, an investment arm of Dubai's government,
according to banking sources.
MSCI world equity index <.MIWD00000PUS> fell 1.3 percent to
its lowest in 2-1/2 weeks, with the benchmark on track for a
second consecutive weekly loss.
Investors who bought the MSCI at the start of the year are
still comfortably in black however with the index holding gains
of over 27 percent since January.
The FTSEurofirst 300 index <> fell about one percent.
Emerging stocks <.MSCIEF> shed 3 percent, on track for their
biggest one-day fall since late October, soon after Brazil
introduced a capital controls tax on financial inflows.
"The Dubai situation is very worrying and people are
obviously worried about a potential domino effect if Dubai can't
pay off their debt," said Benson Wang, senior advisor at
Commodity Broking Services in Sydney.
"This episode has destroyed the confidence between borrowers
and lenders and it has also shaken the confidence about the pace
of a global economic recovery."
U.S. stock markets will reopen on Friday after the
Thanksgiving holiday on Thursday but will close early at 1pm
local time (1800 GMT).
Emerging market spreads <11EMJ> widened by 17 basis points
to 328 basis points over U.S. Treasuries, their highest since
late October.
U.S. crude oil <CLc1> fell 7 percent to $72.52 a barrel.
The Bund future <FGBLc1> rose to 124.05, its highest since
April, reflecting investors' stampede into safe assets.
Five-year German government bond yield <EU5YT=RR> fell to 2.177
percent, its lowest since March.
The yen hit a 14-year high of 84.83 per dollar <JPY=> before
trimming gains as Japanese authorities made their presence felt
by calling banks, moving one step closer to intervention to stem
the yen's surge.
Japan's finance minister Hirohisa Fujii raised the prospect
of a Group of Seven joint statement on currencies to cool the
yen's rally, adding that he was very nervous about currency
moves and it was possible Japan could respond.
The dollar <.DXY> rose 0.9 percent against a basket of major
currencies.
(Additional reporting by Blaise Robinson, editing by Mike
Peacock)
((natsuko.waki@reuters.com, +44 207 542 6721, Reuters
Messaging: natsuko.waki.reuters.com@reuters.net))
