Shares in several European stock markets and leading international companies, including Deutsche Bank and Porsche, took a hit Thursday when a state-owned firm in the Gulf emirate of Dubai said it needed more time to repay billions of dollars in debt.

On Wednesday, conglomerate Dubai World and property developer Nakheel asked their creditors, many of which are based in Europe, for a debt moratorium on $5.5 billion (3.7 billion euros) the two state-owned firms borrowed in June 2008.

Germany's stock index, the DAX, closed 3.3 percent lower, while France's CAC 40 was down 3.4 percent and the FTSE 100 index was down 3.2 percent.

Dubai World and Nakheel have been central to the extravagant building projects undertaken in Dubai in past years. Much of the growth in Dubai has been built on debt, unlike in its oil-rich neighbors.

Dubai's request to delay its debt repayment triggered fears of a domino effect across the emirate's indebted state-run businesses, pushing debt rating agencies to slash the grading of Dubai companies.

The banks involved in raising the multi-billion-dollar loan to help fuel the growth included Europe's biggest bank HSBC, Royal Bank of Scotland, Deutsche Bank and BNP Paribas.

On the news that Dubai wanted more time to repay the loan, shares in those banks and others dropped, with Deutsche Bank down six percent, British lender Barclays down eight percent and Credit Suisse shedding five percent.

The fear of Dubai's default "fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt," Xavier de Villepion, an analyst with Global Equities, told news agency Reuters.

Shares in German carmaker Porsche, which is part-owned by another Arab emirate, Qatar, also took a hit from the Dubai debt moratorium, dropping five percent.

Another German car giant, Daimler, in which Abu Dhabi's Aabar Investments holds a 9.1 percent stake and Kuwait another 6.9 percent, also saw the value of its shares drop.

"Everything that is in Arab hands is getting sold at the moment," said one Frankfurt-based trader.

dfm/Reuters/AFP
Editor: Mark Hallam