European shares dipped by midsession on Friday as concerns about debt problems in Dubai rippled through the market, with banking and oil stocks among the worst performers.
By 1144 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.2 percent at 985.97 points, having earlier been as high as 988.89. The index has gained 53 percent since falling to a record low in early March and is up 18 percent for the year.
The market has started on the downside on the fallout of Dubai, said Jeremy Batstone-Carr, head of research at Charles Stanley.
The equity markets are somewhat overvalued and a pullback is possible. Volumes are going to tail off in the run-up to Christmas and investors are going to be aware that it is going to be volatile.
Energy stocks were among the worst performers as oil CLc1 dropped 5 percent on debt default fears in Dubai. ENI (ENI.MI), BP (BP.L), Royal Dutch Shell (RDSa.L) and Total (TOTF.PA) were down 0.3 to 1.2 percent.
Banks were also weaker. HSBC (HSBA.L), Standard Chartered (STAN.L), Banco Santander (SAN.MC) and Lloyds Banking Group (LLOY.L) were down 1.5 percent to 4.1 percent.
But JP Morgan said there was little to be concerned about from banks' direct exposure to Dubai World's $59 billion outstanding debt, but that there is more to worry about with the spillover within the UAE from CDS spreads widening.
Overall we would argue the UAE direct loan exposure risk is to some extent over-discounted within global banks except for some selective banks, JP Morgan analysts wrote in a note.
Construction stocks performed well. Saint-Gobain SOGB.PA, Lafarge (LAFP.PA) and Bouygues (BOUY.PA) were up 2 to 2.5 percent.
The U.S stock markets will reopen on Friday after the Thanksgiving holiday on Thursday but will close early at 1 pm (1800 GMT).
How will the U.S. market ... react on the development in the Middle East? Perhaps the answer to this question will not be given today, said Roger Peeters, strategist at Close Brothers Seydler.
Across Europe, the FTSE 100 .FTSE index and Germany's DAX .GDAXIwere both down 0.3 percent and France's CAC 40 .FCHI was 0.1 percent lower.