Debt problems in Dubai hit financial markets across the board on Thursday, sinking global stocks, helping lift safe-haven bonds and taking the dollar up from a 14-year low against the yen.

Gold climbed to a new record high but fell back as the dollar rose.

Banking stocks came under pressure because of potential exposure to any bad debt in the Gulf, as did shares in European car companies, some of which are part-owned by sovereign wealth funds from the region.

Markets were also trading without much input from the United States, where it was the Thanksgiving holiday.

Dubai said on Wednesday it wanted creditors of Dubai World and property group Nakheel to agree a debt standstill as it restructures Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.

The announcement triggered widespread concern about the once-booming Gulf region's financial health, although some investors differentiated between leveraged Dubai and other more solidly wealthy emirates and countries in the region.

But the worries fed directly into a general nervousness in financial markets about the real state of the world economy at a time when investors are also seeking to lock in 2009 profits.

The Dubai story is weighing heavily on stock markets and people are looking to safe havens so there's some flight to quality again, said Charles Berry, a bond trader at LBBW.

Others, such as Royal Bank of Scotland, said Dubai's bombshell meant investors would now have to re-appraise the quality of sovereign support for state-owned entities in the region.

Dubai sought to ease some concerns about international port operator DP World , saying its debt was not included in the restructuring.

But markets stayed nervous and the cost of insuring debt through credit default swaps around the Gulf rose.

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EXPOSURE

MSCI's emerging market stock index <.MSCIEF> was down nearly 2 percent, underperforming the broader all-country world index <.MIWD00000PUS>, which was down 1.3 percent.

There were sharp losses in Europe, where the pan-European FTSEurofirst 300 index <.FTEU3> fell 3 percent and was on track for its biggest daily loss in seven months.

Banks were the biggest drag on the index, but the interlinking of world finance showed up elsewhere.

Shares in London Stock Exchange fell as traders cited concern that Bourse Dubai held a substantial stake in the company.

Porsche
and Daimler also lost ground. Qatar Investment Authority holds a 10 percent stake in the former, Aabar Investments from Abu Dhabi and Kuwait own 9.1 percent and 6.9 percent stakes, respectively, in the latter.

It (the Dubai credit issue) does bring to the fore that much of what we have seen in the markets really has been supported by liquidity, said Georgina Taylor, equity strategist, Legal & General Investment Management.

It shows how vulnerable the market still is to newsflow, she said. But it should be seen as a country-specific issue. It's not something systemic. It's about risk appetite.

Within the Gulf, regional bonds sold off.

Anything from Dubai or Abu Dhabi is getting absolutely hosed, a bond trader in London said. There is massive pressure across the board, exacerbated by the thin liquidity.

Gulf markets are closed for Eid holidays.

YEN ASCENDANT

The dollar rebounded from a 14-year low against the yen as traders betting against the dollar seized on the broad risk reduction prompted by Dubai's debt problems to cash in on its recent slide.

Recent news in emerging markets has reverberated around the market. While much of the moves are going to occur in rates and credit markets, it is also being reflected in stock markets and foreign exchange, said Lauren Rosborough, senior strategist at Westpac in London.

The U.S. currency was up 0.7 percent against a basket of competitors <.DXY>.

The dollar's earlier fall against the yen came in part because Japan's deputy finance minister Yoshihiko Noda told Reuters recent currency moves reflected dollar weakness and Japan wasn't considering intervening now.

Euro zone government bond prices were sharply higher. The yield on two year debt fell 11 basis points.

Bund futures rose so high they broke out of a trading range that has been in place since June.

(Additional reporting by Jamie McGeever, Sujata Rao, Simon Falush and Brian Gorman; Editing by Ruth Pitchford)