Asia markets tumble on Dubai debt fears

Asian shares were slammed Friday on global investor alarm about the potential for a widespread default, following Dubai's shock demand to suspend the debt of a key state company.

A trader observes a display board in the Hong Kong Stock exchange on November 26. Property-related debt fears in Dubai have hit Asian markets as investors fretted over their exposure to the potential debt crisis.

Tokyo plunged 3.22 percent, Seoul slumped 4.69 percent and Sydney staged its biggest one-day fall in five months to close 2.90 percent lower.

The dollar languished at a 14-year low, dipping to 84.82 yen in Tokyo trade. Japanese Finance Minister Hirohisa Fujii issued an unusually outspoken warning that the yen's rapid rise was "harmful" to the world's number-two economy.

Hong Kong shares dived 3.45 percent by noon, with banks hit hard by jitters over their potential exposure to Dubai's debt. Shanghai was 1.05 percent down with Chinese banks also down on concerns Beijing may tighten monetary policy.

The falls in Asia followed steep declines in Europe and the Middle East Thursday as investors' appetite for risk evaporated. US markets were closed for the Thanksgiving holiday.

The government of Dubai rocked financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate, which has reported debts of 59 billion dollars, for a debt moratorium of at least six months. Related article: Dubai defends debt payment suspension

The Dubai request "fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt", said Xavier de Villepion, an analyst with Global Equities in Paris.

Financial shares suffered heavy declines across the region as investors questioned banks' potential vulnerability to any debt crisis.

In Hong Kong, HSBC fell 5.4 percent while Standard Chartered was down 4.8 percent in intra-day trade.

Earlier London's FTSE index of leading shares closed 3.18 percent lower after having been forced to suspend trading for three and a half hours due to a technical hitch.

Frankfurt's DAX index fell 3.25 percent and in Paris the CAC closed 3.41 percent lower, with major banks suffering all round. In Paris Societe Generale shed 5.48 percent to 45.62 euros.

Mixed news out of Japan also hit investor sentiment.

A bigger-than-expected fall in the jobless rate pointed at economic recovery after a damaging recession. But Fujii's remark highlighted government fears that the surging yen could again derail the export-reliant economy. Related article: Japan worries yen surge will hit recovery

The finance minister did not signal imminent plans to intervene in currency markets but stressed that Tokyo was watching closely and could take steps for the first time in five years if the situation worsens.

The greenback later rebounded to 86.22 yen in the afternoon session.

Fujii's comment came a day after Prime Minister Yukio Hatoyama said the government must take measures to avoid a double-dip recession.

The yen's rise came as other Japanese data showed core consumer prices fell 2.2 percent in October from a year earlier, marking the eighth straight month of deflation.

Gold on Friday fell back to 1,179.00 dollars an ounce in Asia after soaring to a record high of 1,195.13 dollars Thursday, following a purchase from the IMF of the precious metal by Sri Lanka's central bank.

The commodity has won support in recent weeks from inflationary fears, the weak US currency and moves by central banks to diversify assets into gold.

Markets in Singapore, Kuala Lumpur and Jakarta were closed Friday for public holidays.

-- Dow Jones Newswires contributed to this story --