* MSCI world equity index falls 1.0 pct on Dubai concerns
* U.S. stocks pare losses after steeper drop at open
* US dollar gains; yen loses ground after BoJ checks rates
(Updates with US market closings)
By Al Yoon
NEW YORK, Nov 27 (Reuters) - Fears of a possible Dubai debt
default rippled through markets for a second day on Friday, but
the exodus from stocks and rush to the safe-haven U.S. dollar
slowed as investors discounted contagion.
U.S. stocks fell more than 1 percent, the first day of
trading there after Dubai on Wednesday said it would ask
creditors of two flagship firms, including conglomerate Dubai
World, for a standstill on debt payments as part of a
restructuring. For details, see [].
But euro stocks rebounded a day after falling 3 percent on
the Dubai news, which particularly hit bank stocks.
The potential magnitude of the event, measured by Dubai
World's $59 billion in debt, unhinged markets on concern that
the hangover from the credit-driven property boom may hold more
harsh surprises for banks.
Europe's rebound and U.S. stocks, which pared losses by the
end of a shortened trading session, signaled that investors
expected the event would not upset the global economic
recovery. U.S. markets were closed on Thursday for a holiday.
"What we've seen is that once the dust settles, some of the
markets that were hardest hit have rebounded," said David
Katz, chief investment officer at Matrix Asset Advisors in New
York. "It's a scare to the markets, but the U.S. has less
exposure to Dubai than Middle Eastern and European banks."
The MSCI world equity index <.MIWD00000PUS> fell 1 percent,
posting its second consecutive weekly loss, after earlier
tumbling nearly 2 percent.
The MSCI since October has had trouble extending the rally
that began in March as investors have raced to lock in gains
ahead of year-end accounting. The index is still up about 70
percent since early March.
The Dubai announcement served as a catalyst to an "overdue
correction" to markets whose valuations have outpaced economic
and corporate realities, Mohamed El-Erian, chief executive
officer of Pacific Investment Management Co. told Reuters.
Dubai struggled to ease fears of debt default by saying its
profitable DP World <DPW.DI>, which runs 49 ports around the
world, would not be involved in the restructuring. DP World,
which has $3.25 billion outstanding bonds, is majority owned by
Dubai World but has shares listed on NASDAQDubai.
[]
The emirate is a center for investment and a major source
of capital for Western markets.
On Wall Street the Dow Jones Industrial Average <> fell
154.48 points, or 1.48 percent, to 10,309.92. The Standard &
Poor's 500 Index <.SPX> slid 1.72 percent to 1,091.49 and the
Nasdaq Composite Index <> declined 1.73 percent to
2,138.44.
In Europe the FTSEurofirst 300 <> index of top
European shares rose 1.16 percent to 999.59, after falling more
than 3 percent on Thursday.
Investor appetite for risky assets in Europe bounced, with
the VDAX-NEW volatility index <.V1XI> down 4.5 percent, after a
23 percent jump on Thursday. The higher the index, which is
based on sell and buy options on Frankfurt's top 30 stocks, the
lower the market's desire to take risk.
The U.S. market volatility index <.VIX> rose more than 20
percent to its highest level since Nov. 6.
The dollar rose as fears of a possible Dubai debt default
sent investors to safe havens. Against a basket of currencies
<.DXY>, the dollar climbed 0.23 percent to 75.00
"A combination of systemic risk fears and thin market
liquidity due to the U.S. holiday season has proven to be a
combustible mix and several currencies or currency blocs are
feeling the impact," UBS currency analysts wrote in a note.
"The wider fallout has simply revealed how fragile both
markets and risk appetite still are," they said.
The yen hit a 14-year high against the dollar before
retreating when the Bank of Japan stepped close to currency
intervention by checking exchange rates with commercial banks.
The dollar <JPY=> climbed 0.3 percent to 86.74 yen, while the
euro <EUR=> fell 0.31 percent at $1.4964.
Commodity prices extended previous session's steep losses,
with crude oil <CLc1> under pressure. U.S. light sweet crude
oil fell $1.90, or 2.44 percent, to $76.06 per barrel. Spot
gold <XAU=> fell $20.05, or 1.68 percent, to $1172.50.
Euro zone government bonds and U.S. Treasuries rose in
other flight-to-quality trades. The benchmark 10-year Treasury
note <US10YT=RR> yield declined 0.06 percentage point to 3.21
percent, the lowest on a closing basis since Oct. 7.
(Additional reporting by Ryan Vlastelica and Jennifer Ablan in
New York, Atul Prakash, Jamie McGeever, Simon Falush and
Natsuko Waki in London and Blaise Robinson in Paris; Editing by
Kenneth Barry)
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