Markets are usually relatively quiet when Wall Street is closed for a holiday, as it is Thursday for Thanksgiving Day. Not so today, as the rest of the world digested the stunning news from Dubai that the government's flagship investment company was in financial trouble.
European markets followed Asia lower with the FTSE 100 index of leading British shares closing down 170.68 points, or 3.2 percent, at 5,194.13, having been out of action earlier for over three hours because of technical problems.
Germany's DAX fell 188.85 points, or 3.2 percent, to 5,614.17 while the CAC-40 in France was 129.93 points, or 3.4 percent, lower at 3,679.23.
Sentiment in stocks was dented by the news that Dubai World, which is thought to have debts totaling around $60 billion, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears of a potential default and contagion around the global financial system, particularly in banks and emerging markets.
"Fear of sovereign default in the Middle East rattled the markets," said Jane Foley, research director at Forex.com.
Banks bore the brunt of the selling in Europe, amid fears of potential exposure to Dubai. In London, Royal Bank of Scotland PLC was down nearly 8 percent, making it the biggest faller on the FTSE. In Germany, Deutsche Bank was the biggest faller on the DAX, down around 6 percent.
Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141.
By late afternoon London time, the dollar had recouped some ground and was trading at 86.55 yen, down 0.9 percent on the day, while the euro was 1 percent lower at $1.4988.
The continued appreciation in the value of the yen continued to dent Japanese stocks as investors worry that the rising currency will have a detrimental effect on the country's exports. Japan's Nikkei 225 stock average fell 58.40 points, or 0.6 percent, to 9,383.24.
Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in the currency markets are related as the fall in risk appetite has pushed money into government bonds and into safe haven currencies such as the Swiss franc and the yen.
This, he said, is "testing the tolerance of central banks to see their currencies cause further damage to their economies."
Already there have been unconfirmed reports that the Swiss National Bank has intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc.
Meanwhile, Japanese Finance Minister Hirohisa Fujii tried to assure the market he was closely monitoring the situation and would "take appropriate steps if foreign exchange rates move abnormally." But that did little to ease investor worries.
Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.
Gold has been one of the biggest high-flyers over the last few months, having gained over 10 percent in November alone. It continued to rise Thursday as investors bought it up as a safe haven.
It hit a new record high earlier of $1,196.8 an ounce, before falling back modestly. By late afternoon London time, gold was down 0.4 percent at $1,182.50 an ounce.
Oil also fell alongside stocks - the two have traded alongside each other for much of this year. Benchmark crude for January delivery was down $1.85, or 2.4 percent, at $76.11 a barrel. On Wednesday, it rose $1.94.
Earlier in Asia, the Shanghai index tanked 119.19 points, or 3.6 percent, to close at 3,170.98, its biggest one-day fall since August 31, while Hong Kong's Hang Seng shed 1.8 percent to 22,210.41.
Elsewhere in Asia, markets in Australia, Singapore, Taiwan and Indonesia closed lower.