Oil prices extended their decline from the previous day to a six-week low of below $74 a barrel on Friday, as nervous investors, roiled by debt problems in Dubai, pared positions and shifted to safe-haven assets.

Fears of a second financial storm also caused Asian stocks to slump on Friday, as investors dumped shares in Asian banks and builders, with stock markets in Tokyo and Hong Kong haunted by suspicion of lenders' exposure to the Dubai firms.

U.S. crude for January delivery stood at $73.94 a barrel by 0747 GMT (2:47 a.m. EST) in electronic trading, down more than 5 percent from Wednesday's settlement. There was no settlement price on Thursday because of the U.S. Thanksgiving holiday.

London Brent crude fell $1.26 to $75.73.

The New York Mercantile Exchange will have a shortened floor trading session on Friday.

The Dubai situation is very worrying and people are obviously worried about a potential domino effect if Dubai can't pay off their debt, said Benson Wang, senior adviser at Commodity Broking Services in Sydney.

This episode has destroyed the confidence between borrowers and lenders and it has also shaken the confidence about the pace of a global economic recovery.

Dubai has asked creditors of two of its flagship firms for a standstill on debt running into tens of billions of dollars as part of restructuring Dubai World, sparking fears of debt defaults that could hit other parts of the global economy and derail the fledgling recovery from the global financial crisis.

However, some analysts said oil's sharp decline on Friday could have been exaggerated and needed to be weighed against the thin volumes traded, due to the closure of some financial markets in Asia for holiday.

Oil prices have so far fallen about 10 percent since striking a year-high of $82 early last month, as lackluster economic data and bulging fuel inventories in the United States combine to dent hopes of a swift recovery in energy demand.

With oil now trading below the $75 support level, some analysts said prices risk falling toward the low of around $72 struck in mid-October.

The overall supply and demand fundamentals will tell you that oil prices should fall lower. So perhaps prices could head closer to the $63 level. That's not impossible, said Tony Nunan, an analyst at Mitsubishi Corp in Tokyo, adding that $63 was the 200-day moving average price for crude.

The flight to safe-haven assets kicked up the yen to its highest level in 14 years against the dollar, although the dollar index <.DXY> was still up 0.4 percent against a basket of currencies.

Adding to the grim economic news, the latest data from Japan showed the consumer price index slid in the year to October at its fastest rate since 2001, with increasing signs of weak demand weighing on prices.

(Editing by Clarence Fernandez)