Markets take a battering amid worries over Dubai's debts

Asian markets were rattled by the spectre of a second wave of the financial crisis yesterday after the former boom state of Dubai announced plans to delay its debt repayments, becoming the latest casualty of the global downturn.

The emirate said on Wednesday that Dubai World, a state investment arm, would ask lenders to postpone the settlement date on some loan payments until at least next May.

The move prompted global rating agencies Moody's Investors Service and Standard & Poor's to slash credit ratings on multiple government-controlled companies in the emirate.

The fallout spilled to Asia and dragged markets down across the region. Hong Kong's Hang Seng Index led the decline, plunging 1,075.91 points, or 4.8 per cent, to 21,134.50 for its largest one-day drop in eight months. South Korea tumbled 4.7 per cent, Japan 3.2 per cent and Taiwan 3.2 per cent. The Shanghai Composite Index slipped 2.4 per cent to 3,096.27.

'It's too early to predict who will bleed and how much because we don't know how the situation will [turn out] in Dubai,' said Howard Gorges, a director at South China Brokerage. 'But it is a reminder that we are not completely out of the woods yet.'

The fallout was not limited to Asia. In the US, the Dow Jones Industrial Average fell 2 per cent on opening, before recovering. By midday, the Dow was down 1.16 per cent and the Nasdaq had shed 1.2 per cent.

European stock markets also regained their poise after tumbling in morning trading. The FTSE 100 index of leading British shares closed up 1per cent, Germany's DAX gained 1.3 per cent, and France's CAC-40 ended 1.2 per cent higher.