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quinta-feira, novembro 26, 2009

For those who though that "Dubai" was a winner strategy

Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar

By David Merritt

Nov. 26 (Bloomberg) -- European stocks fell the most in three weeks and bonds jumped after Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar dropped to a 14-year low against the yen.

Europe’s Dow Jones Stoxx 600 Index retreated 2.1 percent at 10:25 a.m. in London. The Shanghai Composite Index slumped 3.6 percent, its biggest drop since August. Credit-default swaps tied to debt sold by Dubai rose 131 basis points to 571 according to CMA DataVision. U.S. markets are closed today for the Thanksgiving holiday.

Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt. The dollar’s slump to a 14-year low against the yen prompted Japanese Finance Minister Hirohisa Fuji to say his government is watching currencies “very closely,” while traders said the Swiss central bank sold the franc after it climbed to the highest value against the euro since June 24.

“Dubai isn’t doing risk appetite any favors at all and the markets remain in a vulnerable state of mind,” said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets. “We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”

Sovereign Debt

The Dubai announcement drove up the cost of protecting emerging-market sovereign debt against default. Contracts linked to Saudi Arabia climbed 23 to 113, while Bahrain rose 37 to 231.5, CMA prices show. Debt swaps linked to Abu Dhabi government bonds increased 23.5 to 160, Vietnam rose 31 to 244, Indonesia climbed 22 to 224 and Russia added 19 to 211. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Vietnam’s dong, the world’s worst-performing currency, declined 3.3 percent against the dollar to a record low after the central bank devalued the currency to curb inflation. South Africa’s rand weakened 1.6 percent against the dollar as gold declined. The Turkish lira slumped 1.2 percent versus the greenback, and Hungary’s forint lost 1.1 percent per euro.

Russia’s Micex Index fell 2.2 percent as commodities retreated. The MSCI Emerging Markets Index of 22 developing nations fell 1.1 percent.

Property Slump

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the global recession. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. Banks around the world have written off more than $1.7 trillion as the credit crisis trashed the value of their assets.

European bonds rose as investors fled to the relative safety of government debt. The yield on the 10-year U.K. gilt dropped 5 basis points 3.57 percent after falling earlier to the lowest level in more than a month. The 10-year German bund yield declined 6 basis points to 3.20 percent, a more than three-week low.

Stocks fell from Shanghai to Tokyo and London. The MSCI Asia Pacific Indexretreated 0.6 percent as Chinese banks dropped on concern they need to sell more shares to fund demand for loans. Bank of China Ltd., which said this week it’s studying options to replenish funds, declined 3.5 percent.

China Minsheng

China Minsheng Banking Corp. became the first Chinese lender in four years to fall in its Hong Kong trading debut. The nation’s first privately owned lender slipped 3.1 percent after raising HK$30.1 billion ($3.9 billion) this month in the territory’s biggest public share sale since April 2007.

Japan’s Nikkei 225 Stock Average fell to a four-month low as the dollar’s decline against the yen dimmed the earnings outlook for makers of electronics and cars. Canon Inc., the world’s largest maker of cameras and which gets 28 percent of sales from the Americas, lost 2.1 percent in Tokyo. Toyota Motor Corp., the world’s biggest carmaker, slid 1.2 percent.

Futures on the Standard & Poor’s 500 Index retreated 1.2 percent. The U.S. stock market will be open for a half day of trading tomorrow.

The yen climbed to as high as 86.30 per dollar, the strongest since July 1995, before trading at 86.84. The U.S. currency strengthened against all but the yen among its 16 most- traded counterparts, appreciating 1.7 percent to 72.04 cents versus the New Zealand dollar and advancing 1.5 percent to 7.4443 South African rand.

Swiss Franc

The Swiss franc weakened to as low as 1.5133 per euro, falling from the highest level since June, on speculation the Swiss National Bank sold the currency to curb its gains. The franc dropped 0.4 percent to 1.0007 against the dollar, after climbing to parity with the greenback yesterday for the first time in 19 months.

The SNB declined to comment.

Crude oil for January delivery fell 92 cents, or 1.2 percent, to $77.04 a barrel in electronic trading on the New York Mercantile Exchange after a government report yesterday showed rising inventories. Gold for immediate delivery declined 0.4 percent to $1,186.53 an ounce in London trading, after touching an all-time high earlier today.

To contact the reporter on this story: David Merritt in London at dmerritt1@bloomberg.net.

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