Fears about a global contagion from Dubai's debt crisis triggered a broad sell-off of world shares, oil and other assets on Friday, fuelling flows into the low-yielding yen and safe-haven government bonds.

The crisis flared on Wednesday when the government of Dubai said it wanted to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its property arm Nakheel.

Concerns about the exposure of banks worldwide to Dubai's total debt of $80 billion fanned fears that their recovery from the credit crisis might stall and the global economy might dip into another recession.

It's absolute paranoia. This is the last thing the market needed in the run up to Christmas, said Manus Cranny, head of sales at MF Global. It's not just the Dubai debt, investors are wondering what other black holes there are and what the ramifications are for global companies.

Exposure to Dubai World could be as high as $12 billion in syndicated and bilateral loans, including existing loans for Nakheel and Istithmar, an investment arm of Dubai's government, according to banking sources. MSCI world equity index <.MIWD00000PUS> fell 1.3 percent to its lowest in 2-1/2 weeks, with the benchmark on track for a second consecutive weekly loss.

Investors who bought the MSCI at the start of the year are still comfortably in black however with the index holding gains of over 27 percent since January.

The FTSEurofirst 300 index <.FTEU3> fell about one percent.

Emerging stocks <.MSCIEF> shed 3 percent, on track for their biggest one-day fall since late October, soon after Brazil introduced a capital controls tax on financial inflows.

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 advisor 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.

U.S. stock markets will reopen on Friday after the Thanksgiving holiday on Thursday but will close early at 1pm local time (1800 GMT).

Emerging market spreads widened by 17 basis points to 328 basis points over U.S. Treasuries, their highest since late October.

U.S. crude oil fell 7 percent to $72.52 a barrel.

The Bund future rose to 124.05, its highest since April, reflecting investors' stampede into safe assets. Five-year German government bond yield fell to 2.177 percent, its lowest since March.

The yen hit a 14-year high of 84.83 per dollar before trimming gains as Japanese authorities made their presence felt by calling banks, moving one step closer to intervention to stem the yen's surge.

Japan's finance minister Hirohisa Fujii raised the prospect of a Group of Seven joint statement on currencies to cool the yen's rally, adding that he was very nervous about currency moves and it was possible Japan could respond.

The dollar <.DXY> rose 0.9 percent against a basket of major currencies.

(Additional reporting by Blaise Robinson, editing by Mike Peacock)