Stocks pared their losses Friday, after a sharp drop at the open amid worries about Dubai defaulting on its debt.
The Dow Jones Industrial Average was down about 130 points in late-morning trading, after falling more than 200 at the opening bell.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped back to around 25, after finishing Wednesday's session near 20.
General Electric , Alcoa and Caterpillar were the biggest drags on the Dow at the open.
As the morning went on, tech components Microsoft and HP slipped to the bottom of the pack.
The dollar rallied against most major currencies as investors looked for a safe haven. But it was no match for the yen, which hit a 14-year high against the dollar.
Gold fell more than $20to below $1,170 an ounce. Oil dropped below $75 a barrel.
Dubai, which became a trading and tourism hub and enjoyed a construction boom before the crisis, said it would ask creditors of Dubai World and Nakheel to agree a 6-month standstill on billions of dollars of debt which it is seeking to restructure.
It is estimated that Dubai owes anywhere from $80 billion to $90 billion. Dubai World accounts for $59 billion. Nakheel is the builder of the three palm-shaped islands off Dubai.
Bank stocks were hit by worries about Dubai's debt. Citigroup was among those with the heaviest exposure.