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.
Several analysts said the market had gotten ahead of itself and investors, predictably, used the Dubai news as an excuse to sell.
The Dubai fallout is a correction, not the beginning of a new crisis, Pimco's Mohammed El-Erian said on CNBC this morning, adding that the market's reaction shows financial markets haven't calmed down after last year's collapse.
"Now I think investors are going to look much closer to fundamentals," he said.
This is just a blip for the market, Arjuna Mahendran, head of investment strategy Asia at HSBC Private Bank, said on CNBC Asia.
"I characterize it as a case of indigestion...it's like having a very rich meal — you just get indigestion if you can't really process it that fast, and they rolled out a lot of capacity expansion," Mahendran said.
"I would wager that if risk assets see short-term corrections in prices, it's a good buying opportunity... because the broader picture is one of steady recovery across the world," Mahendran concluded.
Still, most investors were expected to wait until the dust settlesbefore jumping back into the market.
European markets rebounded Friday, with major indexes up about 0.8 percent in late trading, after falling more than 3 percent Thursday on the news.
There are no major U.S. economic or earnings reports due out today.
The New York Stock Exchange will close early — at 1pm ET.
While financial markets were roiled by the Dubai news, shoppers here in the U.S. crawled out of bed in the dark to take advantage of some blockbuster Black Friday deals and start their holiday shopping.
The early reports are that the season is off to a good start: Lines are longer and carts are fuller.
Most retailers expect to beat last year's sales numbers, which were weak, but don't expect to even come close to 2007 sales, which occurred before the financial crisis hit.
Discount retailers like Wal-Mart Stores and Target are expected to see the heaviest traffic over the holiday weekend, followed by department store chains like Macy's and Kohl's .
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