Rising fears of a possible debt default at a Dubai state-owned conglomerate is the catalyst for an overdue correction in equities and risk assets, the chief executive of top bond fund manager Pimco said in an interview on Friday.

While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down, CEO Mohamed El-Erian told Reuters.

The Dubai announcement is serving as this catalyst.

Equity markets came under severe pressure on Thursday after news that Dubai World, the government investment company burdened by $59 billion in liabilities, sought to delay repayment of some debt.

U.S. stock markets, which were closed Thursday for the U.S. Thanksgiving Day holiday, fell on Friday. The Dow Jones industrial average <.DJI> dropped 124 points, or 1.2 percent, to 10,340, while the Standard & Poor's 500 Index <.SPX> fell 15.65 points, or 1.41 percent, to 1,094.98.

We had taken down risk exposures in the last few weeks through sales of credit and spread products and, correspondingly, increased our holdings of Treasuries and other high quality names, El-Erian said.

Overall, the underlying characteristics of the Dubai announcement are similar to those facing commercial real estate in other countries, including the United States and United Kingdom, he said.

There will be contagion to many markets, especially in the emerging world where we are witnessing broad-based sell-offs among names with very different financial characteristics.

(Reporting by Jennifer Ablan; Editing by Padraic Cassidy and Jeffrey Benkoe)