Stocks, Gold, Oil Drop on Dubai World’s Loss, Greece Downgrade

Dec. 8 (Bloomberg) -- Stocks, gold and oil fell while the dollar rallied after Dubai World’s Nakheel PJSC lost $3.65 billion, Fitch Ratings downgraded Greece’s credit and German industrial production unexpectedly dropped.

The MSCI Emerging Markets Index declined 1.3 percent, and the Standard & Poor’s 500 Index slumped 1 percent at 3:28 p.m. in New York. Gold dropped for a third day in New York. Crude posted a fifth consecutive retreat. The rate on Greece’s two- year notes rose the most since 1998. The dollar appreciated against 14 of the 16 most-active currencies.

Concern that Dubai World would default on $59 billion in debt roiled markets last month, spurring speculation that the recovery in the global financial system would stall. Moody’s Investors Service said deteriorating public finances in the U.S. and U.K. may test their Aaa ratings. Federal Reserve Chairman Ben S. Bernanke told the Washington Economic Club yesterday that the economy faces “formidable headwinds.”

“Greece is a whole lot more important than Dubai,” said Uri Landesman, New York-based fund manager at ING Investment Management. “There are a lot of banks, in Europe especially, that have exposure to Greece, so if there’s a major problem in Greece, that would be more important than a problem in Dubai.”

Equities and commodities dropped from their highs of the day, while the yen and dollar gained against the euro, after German industrial output fell 1.8 percent in October, led by a drop in production of energy and investment goods such as machinery, the Economy Ministry in Berlin said today. Economists forecast a 1 percent gain, according to the median of 38 estimates in a Bloomberg survey.

Property Writedowns

The MSCI World Index of equities in 23 developed nations and futures on the S&P 500 extended their decline after Bloomberg News reported that Nakheel, the Dubai World-owned property developer seeking to renegotiate debt, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property. A spokesman for Dubai World, Nakheel’s parent, wouldn’t comment.

Royal Bank of Scotland Group Plc, the biggest underwriter of loans to Dubai World, fell 7.7 percent in London trading following Nakheel’s loss.

Greek stocks and government bonds tumbled on mounting concern the nation may struggle to meet its debt commitments as public finances deteriorate. The Athens Stock Exchange General Index dropped 6 percent, its biggest decline since Nov. 26. The yield on the government two-year note jumped 66 basis points, the most since August 1998.

Another Cut?

Fitch Ratings cut Greece one step to BBB+ today, the third- lowest investment grade. S&P put Greece’s A- rating on watch for a possible downgrade yesterday, signaling it may be reduced within two months.

MSCI’s gauge of emerging-market stocks slumped for a third day, the longest losing streak in five weeks. Dubai shares fell the most among benchmark indexes tracked by Bloomberg, tumbling 6.1 percent. The DFM General Index has lost 25 percent since Nov. 16. On Nov. 25, the government said it was seeking a “standstill” agreement on Dubai World’s debt.

Gold futures for February delivery decreased 2 percent to $1,134.50 an ounce in New York as the dollar’s 0.9 percent advance to $1.4698 per euro curbed the metal’s appeal as an alternative investment.

The Bank of Korea, diversifying foreign-exchange reserves away from a falling dollar, said additional gold holdings aren’t attractive as most other central banks aren’t buying and the metal offers no cash returns.

‘Illusion in Gold

“There’s an illusion in gold,” Lee Eung Baek, head of the bank’s reserve-management department, said in an interview. “We follow the big trend. Gold isn’t the trend.”

Barrick Gold Corp., the world’s largest producer of the precious metal, dropped 4.2 percent in U.S. trading.

Crude oil for January delivery lost 1.7 percent to $72.68 a barrel in New York. U.S. supplies of crude oil climbed 500,000 barrels in the week ended Dec. 4, the third straight increase, a Bloomberg News survey showed before tomorrow’s Energy Department report in Washington.

PetroChina Co., the nation’s largest oil company, declined 1.4 percent in Hong Kong. Exxon Mobil Corp. slumped 1.4 percent.

Treasuries rose for a second day as the Fitch Ratings downgrade of Greece spurred demand for the relative safety of U.S. government securities. Ten-year note yields fell four basis points to 3.39 percent, according to BGCantor Market Data. The rate on two-year notes touched 0.69 percent, the lowest level since Dec. 2. The securities gained the most in five weeks yesterday after Bernanke said the job market “remains weak” and inflation “could move lower.”

“There is some nervousness with investors about how things are going to evolve,” said Thomas Schudel, a fund manager at Zurich-based Clariden Leu Ltd., which oversees about $100 billion. “The economic recovery might not be so quick as people thought.”