U.S. stocks continued to slump in afternoon trading Friday amid growing concern over Dubai's financial stability.

The Dow Jones industrial average began the day with a loss of more than 200 points and it ended down 154.48 points, or one and a half per cent, to 10,309.92.

Not everything is soaring in Dubai, home of the Burj Dubai, the world tallest tower, which is scheduled to open in January. The investment arm of the government has defaulted on $59 billion US in debt. (Kamran Jebreili/Associated Press)

The Nasdaq index fell 37.61 to end the day at 2138.44 and the broader Standard & Poor's index of 500 stocks finished down 19.14 to 1091.49.

Nervous investors in many countries continue to show concern regarding the ability of the Middle Eastern emirate of Dubai to repay two-thirds of its national debt. The investment arm of the Dubai government, Dubai World, on Wednesday defaulted on $59 billion US in debt and asked lenders for a reprieve on repayment until May.

Former Bank of Canada governor David Dodge told CBC News on Friday he doesn't see the default as a crisis.

"We know that commercial real estate around the world, whether it's the United States, Europe, whether it's the Mideast, we know that commercial real estate is probably the one thing where we haven't seen as yet the full effects. We know we've got more coming in terms of problems with commercial real estate in the United States," he said.

Speaking from the annual Bennett Jones economic outlook conference in Lake Louise, Alta., Dodge said "it's part of a correction in financial markets which we know was still to come."

Vancouver-based Citizens Bank said in a commentary Friday that financial markets are preoccupied with concerns about Dubai's debt.

'The cost of money just got a lot more expensive for everyone.'—Citizens Bank commentary

"Perhaps the financial effect of this specific problem will be contained locally and will not infect the greater global economy," it said.

"However, one effect of this event will be that the cost of money just got a lot more expensive for everyone. Credit guidelines will be tightened again by all banks, not just those who are affected by Dubai; this will make it more difficult for consumers and businesses to borrow at all, never mind the interest rate. It would not be an understatement to say that Dubai is driving everything in the market at the moment."

Dodge expected the effects on the cost of borrowing to be minimal.

"It's going to have some effect," he said. "But I think you have to put it in perspective that it is one very large, huge commercial real estate development, in effect that's what Dubai is, and there's probably going to have to be some writedowns. Is that the end of the world? Absolutely not."

A number of mainly European and Asian banks had lent money to Dubai World and could face the loss in value of some of these holdings if the emirate is unable to meet its payment obligations on a debt mountain of $80 billion.

No Canadian banks significantly exposed

In its commentary, Citizens Bank said "the complete list of creditors which has not been made public will no doubt include many of the world’s major banks; Canadian banks are certainly among them although the general consensus is that no Canadian financial institution has significant exposure to Dubai."

Banks that are exposed include HSBC, Barclays and Royal Bank of Scotland. HSBC closed down $3.61, or almost six per cent, at $58.46 US in New York. Barclays ended off $1.47 to $19.62 and RBS finished at $11.48, a drop of 55 cents.

The situation for U.S. equity markets is additionally precarious because those markets were closed on Thursday — the first full day of stock trading after Dubai's announcement — for American Thanksgiving.

Thus, analysts argued U.S. traders might play catch-up in terms of selling equities fast on Friday rather than trying to wait out the crisis and hold their stocks.

TSX ends positive

Canada's main stock exchange, the TSX, was open on Friday and tumbled 200 points, but the main index in Toronto ended in positive territory, gaining 27.61 points to 11,464.41.

Montreal-based global entertainment empire Cirque du Soleil said Friday it was unaffected by financial problems of its minority shareholder, Dubai property developer Nakheel and Istithmar World Capital. The two companies bought a 20 per cent stake in Cirque in August 2008.

European stocks lost value early in the trading day on Friday but regained value and generally closed the day in positive territory after sharp losses Thursday.

The FTSE 100, the key London index, was up 0.25 per cent while Germany's DAX index gained 0.34 per cent and France's CAC 40 added more than 0.5 per cent, reviving from Thursday's shock.

Asian markets got crunched after missing most of Thursday's hit. Hong Kong's Hang Seng index lost almost five per cent while Japan's Nikkei index dropped more than three per cent.

(With files from The Associated Press)