Debt problems in Dubai hit global stocks, helped lift bonds and took the dollar away from a 14-year low against the yen on Thursday.
Gold climbed to a new record high before falling back as the dollar rose.
Banking stocks came under pressure because of potential exposure to any bad debt in the region, as did shares in European car companies, some of which are part-owned by Gulf sovereign wealth funds.
Markets were trading without much input from the United States, where it was the Thanksgiving holiday.
Dubai said on Wednesday it was asking 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 added to 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 eased some concerns about international port operator DP World
MSCI's emerging market stock index <.MSCIEF> was down more than 1 percent, underperforming the broader all-country world index <.MIWD00000PUS>, which was down 0.7 percent.
There were sharp losses in Europe, where the pan-European FTSEurofirst 300 index <.FTEU3> fell more than 2 percent.
Banks were the biggest drag on the index, but the interlinking of world finance showed up elsewhere.
Shares in London Stock Exchange
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 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 higher. Bund futures rose to break out of a trading range that has been in place since June.
(Additional reporting by Jamie McGeever and Simon Falush; Editing by Ruth Pitchford)