Dubai debt fears remain the key focus for global markets

Commodities, which are priced in dollars, fell as the dollar gained. The move reflected an unwinding of trades that relied on a weak dollar to finance purchases of higher-yielding assets. Spooked traders reversing the so-called “carry trade” were demanding safe-haven assets.

Investors have been pushing into riskier assets for months as they seek higher returns. U.S. interest rates are at record lows, making riskier investments like stocks an enticing alternative to the paltry earnings of safer investments like government debt.

Crude oil fell US$3.23 to US$74.73 on the New York Mercantile Exchange. Gold fell.

European markets, which fell more than 3 percent Thursday, turned higher after an early slide Friday. In afternoon trading, Britain's FTSE 100 rose 0.2 percent, Germany's DAX index rose 0.3 percent and France's CAC-40 advanced 0.5 percent.

In Asia, Japan's Nikkei stock average slid 3.2 percent. Hong Kong's Hang Seng index tumbled 4.8 percent. South Korea's benchmark dropped 4.7 percent.

The worries about Dubai erupted amid a period of relative calm in U.S. markets. The Chicago Board Options Exchange's Volatility Index, known as the market's fear index, jumped more than 4 percent to 24.83.

On Wednesday it fell to its lowest level since August 2008. That signaled investors hadn't been worried about big swings in the market.

The historical average of the VIX, as it's known, is 18 to 20. It jumped to a record 89.5 in October last year around the height of the financial crisis.

The latest test of the market comes as major stock indicators had been up by more than 6 percent this month after stalling last month on worries about the economy. The S&P 500 index is up 64.2 percent from a 12-year low in March.

Trading volume in November has been light as many professional investors have pulled back from markets in hopes of locking in the big gains for 2009.

Rovelli said investors have been too quick to assume that the financial markets are on the mend.

“We're way ahead of ourselves in this market. We're in the eye of the storm now and we've been in it since March,” he said. “Now we're in the back end of the storm.”

Falling stocks outpaced those that rose 15-to-1 on the New York Stock Exchange, where volume came to 162 million shares compared with 91.8 million shares traded at the same point Wednesday.

The Russell 2000 index of smaller companies fell 13.22, or 2.2 percent, to 578.97.

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