Johannesburg — DEBT problems in Dubai struck financial markets hard yesterday, sinking global stocks, lifting safe- haven bonds and driving the dollar higher.

European shares had their worst daily loss in seven months. Gold climbed to a new record high but fell back as the dollar rose.

Banking stocks came under particular pressure because of potential exposure to any bad debt in the Gulf, as did shares in European car companies, some of which are part-owned by sovereign wealth funds from the region.

Markets traded without much input from the US bourses, closed for the Thanksgiving holiday.

Dubai said on Wednesday it wanted creditors of Dubai World and property group Nakheel to agree to a debt standstill as it restructured Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.

The announcement triggered widespread concern about the Gulf region's financial health. The worries also fed into nervousness in financial markets about the real state of the world economy.

London's FTSE 100 slid 2,49%, France's CAC-40 index fell 2,7% and the JSE's all share index slid 1,69% lower to 27025. The Shanghai composite index fell 3,6% and the Hang Seng slid 1,77%.

The rand weakened to R7,50/, the most among emerging market currencies.

Sasha Naryshkine of Vestact Asset Management said the fact that Dubai World was not communicating transparently made everybody "anxious". The debt- standstill request came after the market closed and just before the Eid holiday long weekend.

The substantial fall in commercial real-estate values in Dubai had been known, and "it was not as if Dubai World was bankrupt". "They need to find a way to roll over 4bn of debt by the end of December," he said.

Citigroup senior trader Grant Sullivan said the Dubai debt stand- still attempt had triggered "a sell- off of risk" on markets.

"The Dubai worries have played a major role in rattling market sentiment when the US is closed and we are not getting anything from anywhere else," said Peter Dixon, economist at Commerzbank.

Credit rating agencies Moody's Investor Services and Standard & Poor's cut ratings of Dubai state companies, and said they might consider Dubai World's plans to delay debt payments a default.

S&P said it had placed on credit watch with negative implications four banks in Dubai, the Emirates Bank International, National Bank of Dubai, Mashreqbank and Dubai Islamic Bank.

Dubai World's investments in SA may not be affected immediately. However, Lexshell, the consortium that in 2006 bought the V&A Waterfront from Transnet for R7bn, is believed to be highly geared, which has prevented it from fulfilling its promise of further development of the Waterfront, of which it owns a 37,5% stake through its local arm Dubai World Africa.

Dubai World Africa was not available to comment yesterday. It owns an 80% stake in Shamwari game reserve and investments in Pearl Valley golf estate and other game and hotel properties in SA.

South African companies have had contracts in Dubai cancelled due to the downturn. Murray & Roberts spokesman Ed Jardim said it would comment today on if the Dubai World debt crisis had affected it. This year, M&R said a R5bn airport contract and the Trump Towers Dubai project had been withdrawn. With Julius Baumann, Thabang Mokopanele, Bloomberg and Reuters