By Mark Gilbert and Paul Sillitoe Nov. 27 (Bloomberg) -- Commodities dropped the most since July, emerging-market stocks fell, Treasuries and the dollar rose and credit default swaps surged as Dubai’s attempt to delay debt repayments unnerved investors. The MSCI Emerging Markets Index of 22 developing countries slipped 2.6 percent at 12:17 p.m. in London, the most since Oct. 28. U.S. stock-index futures dropped and Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses. Ten-year Treasury yields declined eight 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. “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 concern that the yen’s ascent will hurt the economy by crimping exports. Kospi, Taiex The MSCI Asia Pacific Index slid 3.2 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 1.3 percent, while the ruble fell 1.8 percent, headed for its biggest drop in three months. The MSCI World Index fell 0.7 percent. Futures on the Standard & Poor’s 500 Index dropped 2.6 percent, after U.S. markets were closed yesterday. The MSCI World has rallied 67 percent since March 9, and the Standard & Poor’s 500 Index has climbed 64 percent in the steepest rally since the Great Depression. The rebound came as the Federal Reserve spent, lent or guaranteed $11.6 trillion and held interest rates near zero to unlock credit markets and end the first simultaneous recessions in the U.S., Europe and Japan since World War II. The Stoxx 600 pared a decline of as much as 1.8 percent 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 1 percent in London, having plunged 10 percent. Metals Fall HSBC Holdings Plc, which said it had $15.9 billion in loans and advances to customers in the United Arab Emirates at the end of June, slipped 1.5 percent. Copper led a retreat in industrial metals, dropping as much as 1.8 percent on the London Metal Exchange. Aluminum, nickel and zinc also fell. Gold for immediate delivery slipped 2 percent after dropping as much as 4.2 percent, the steepest decline since January. Silver declined 4.1 percent. Wheat fell 3.3 percent in Chicago trading and corn slumped 3 percent. 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 sliding as much as 4.3 percent on London’s ICE Futures Europe exchange. On the New York Mercantile Exchange, where markets didn’t settle yesterday, January U.S. crude futures were trading at $74.15 a barrel, down 4.8 percent from the closing price on Nov. 25. 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, according to CMA. Sellers also are requiring a 12 percent payment in advance. Swaps on Malaysian government bonds rose 16 basis points to 120 and those on Thailand climbed 14 to 124. ‘Contagion Effect’ 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. “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 dollar rose against the euro, recouping most of its decline this week, as Dubai spurred demand for the perceived safety of the U.S. currency. The European currency slipped to $1.4919, from $1.5019 yesterday, while the Dollar Index advanced 0.6 percent. Yen Advances The yen climbed against all 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. “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. To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net.

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