By Mark Gilbert Nov. 27 (Bloomberg) -- Emerging-market stocks fell for a second day, Treasuries jumped and credit default swaps surged as Dubai’s attempt to delay debt repayments unnerved investors. European stocks pared declines. The MSCI Emerging Markets Index of 22 developing countries dropped 2.6 percent at 10:11 a.m. in London, the most since Oct. 28. Ten-year Treasury yields fell nine basis points. The yen rallied as much as 2 percent against the dollar before trading little changed on speculation Japan may act to curb gains. Credit-default swaps tied to debt sold by Dubai rose 134 basis points to 675, according to CMA DataVision. “Emerging markets could suffer the most because we saw the biggest gains there,” said Henrik Drusebjerg, a senior strategist at Nordea Investment Management in Copenhagen, which oversees $220 billion. “Everyone had a good year,” he said. “We are one month short of finalizing 2009, so you could see quite a substantial amount of investors cutting any potential losses now. The doom scenario is that this could revive the whole financial crisis.” Dubai World, the government investment company burdened by $59 billion of liabilities, sought this week to delay repayment on much of its debt. The yen pared its advance after Japan’s Finance Minister Hirohisa Fujii said he may contact the U.S. and Europe to act on currencies, signaling his concern that the yen’s ascent will hurt the economy by crimping exports. Kospi, Taiex The MSCI Asia Pacific Index slid 3.3 percent, the biggest drop in three months. South Korea’s Kospi index slumped 4.7 percent, and Taiwan’s Taiex lost 3.2 percent. Russia’s Micex index slipped 1.7 percent, while the ruble fell 1.8 percent, headed for its biggest drop in three months. The MSCI World Index slid 0.8 percent. Futures on the Standard & Poor’s 500 Index plunged 2.6 percent, after U.S. markets were closed yesterday. The Dow Jones Stoxx 600 Index of European shares fluctuated between gains and losses, after earlier sinking as much as 1.8 percent. European shares pared declines as banking stocks rallied. Royal Bank of Scotland Group Plc, which was Dubai World’s biggest loan arranger since January 2007 according to JPMorgan Chase & Co., gained 4.1 percent in London, having plunged 10 percent earlier. HSBC Holdings Plc, Europe’s biggest bank, slipped 0.6 percent, after falling as much as 4.2 percent. Dubai 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 worst global recession since World War II. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG. “If Dubai has to default, that could start a wave of defaults in other areas,” Mark Mobius, the chairman of Templeton Asset Management Ltd. who oversees $25 billion in emerging-market assets, said in an interview on Bloomberg Television from Hanoi. “This may be the trigger to allow for the market to take a rest and pull back.” Credit-default swaps on emerging-market government and corporate bonds jumped, with contracts on Qatar adding 15 basis points to 129 and Abu Dhabi rising 24 to 184, according to CMA DataVision prices. Default swaps on DP World Ltd., the Middle East’s biggest port operator, rose 201 basis points to 810, with the swaps settled with a 12 percent payment in advance, according to CMA. Swaps on Malaysian government bonds rose 16 basis points to 120 and those on Thailand climbed 14 to 124. 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. ‘Contagion Effect’ “People are worried about the contagion effect,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which holds $75 billion in assets. “Events like this bring back all the bad memories from the global financial crisis.” Writedowns and losses at banks around the world have risen to more than $1.7 trillion since 2007 as the credit crisis undermined the value of assets owned by financial institutions, according to data compiled by Bloomberg. The yen climbed against 14 of the 16 most-traded counterparts. The Japanese and U.S. currencies rose more than 1 percent against the Australian dollar. The yen also climbed against South Korea’s won and 1.8 percent versus Russia’s ruble. Japan’s Fujii said Group of Seven nations “will do what is necessary.” Financial Services Minister Shizuka Kamei urged an international response to halt the currency’s gain. Yen Speculation “People are scared and concerned about possible intervention,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC Co. in Tokyo. The Bank of Japan may sell the yen “and buy Treasuries, which will be a plus for Treasuries,” he said. Central banks intervene by buying or selling their currencies after sudden movements. Treasuries rose the most this month, with the yield on the 10-year note falling as low as 3.15 percent, a level not seen since Oct. 2, according to BGCantor Market Data. The German 10- year bund and U.K. gilts due in 2019 gained. The difference in yield, or spread, between Greek 10-year debt and bunds reached 211 basis points, the most since May 1, as investors demanded a higher premium to hold anything but the safest securities. Copper led a plunge in industrial metals, dropping as much as 1.8 percent to $6,700 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Gold for immediate delivery retreated 3 percent to $1,152.42 an ounce. It earlier fell as much as 4.2 percent, the steepest drop since January. Silver declined 4.1 percent to $17.8925 an ounce. Wheat fell 3.3 percent to $5.525 a bushel in Chicago trading, corn slumped 3 percent to $3.9575 a bushel and soybeans retreated 2.8 percent to $10.255 a bushel. The market was closed yesterday for the Thanksgiving Day holiday. Brent crude oil for January settlement fell 1.8 percent to $75.58 a barrel, after plunging as much as 4.3 percent earlier today on the London-based ICE Futures Europe exchange. On the New York Mercantile Exchange, where markets didn’t settle yesterday because of the public holiday, January U.S. crude futures were trading at $74.36 a barrel, down 4.6 percent from the closing price on Nov. 25. To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net.

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