Asian shares skid on Dubai worries

The shock Dubai news raised investor fears of debt defaults that could hit other parts of the global economy just as it is trying to recovery from the global financial crisis.

Japan's Nikkei average took its cue from a sharp fall in Europe to hit a four-month low, coming under additional pressure from weakness in exporters as the dollar fell against the yen.

The MSCI index of Asia Pacific stocks traded outside Japan dropped 2.5 percent, while the Thomson Reuters index of regional shares fell 0.63 percent.

Banking shares led the falls on concerns about exposure to the billions of dollars in Dubai debt. The MSCI index of banking shares in Asia Pacific outside Japan shed nearly 3 percent.

"Some of the tensions can spill over into those economies which are externally dependant for funding their investment plans," said Binay Chandgothia, chief investment officer at Principal Global Investors in Hong Kong, a fund.

Dubai said on Wednesday it wanted creditors of state-owned Dubai World and its property subsidiary Nakheel, to agree to a debt standstill in a first step towards restructuring.

Dubai World, the conglomerate that spearheaded the emirate's breakneck growth, had some $59 billion (36 billion pounds) in liabilities as of August.

The Dubai announcement sparked immediate rating downgrades of several government-related entities and sent the cost of insuring against the emirate's debt soaring and bond prices tumbling.

European shares had their worst daily percentage loss in seven months on Thursday and gold climbed to a record high of $1,194.90. The United States celebrated Thanksgiving holiday.