The markets plunged lower Friday morning as investors reacted to news that Dubai World has asked debtors to wait six months on debt payments while the company restructures. The major indices gapped open lower with the Dow Industrials off more than 200 points but stocks have been bouncing off their lows the entire day. Unfortunately this is a low-volume post-holiday session and the U.S. markets are set to close early within the hour. Monday will be the real test when fund managers return to work. Do they buy this dip or sell the breakdown?

Asian markets were hit hard. The Japanese NIKKEI index hit a four-month low on Friday with a 3.2% decline. The Japanese market struggled with the yen hitting a 14-year high against the dollar. The NIKKEI has now fallen five weeks in a row. The Chinese Shanghai index lost 2.3%. The selling pressure in Hong Kong was nearly twice as bad. The Hong Kong Hang Seng fell 5.4% at its worst levels of the day. The index tested round-number support near the 21,000 level before trimming its losses to close down 4.8%. The Hong Kong Monetary Authority went so far as to issue a statement and calm fears about how much exposure the banks might have to Dubai. According to the HKMA's statement "The financial problems of Dubai World should not pose any systemic risk... the banking sector's exposure to the United Arab Emirates, of which Dubai is a member, amounted to 0.39 percent of total assets in the banking sector."

It was a different story in Europe. Most of the pain was felt on Thursday with the major markets off more than 3%. Stocks gapped open lower on Friday morning but quickly rebounded. The banking sector, which led the market lower on Thursday, helped lead the markets higher on Friday with the biggest rebound. J.P. Morgan Chase issued an opinion that HSBC Holdings and the Royal Bank of Scotland were probably the two banks with the biggest risk of exposure to any default by Dubai World. At the end of the day the English FTSE index rose 0.99%. The French CAC-40 gained 1.1%. The German DAX rebounded 1.2%.

Just in case you haven't heard Dubai World, a government run investment fund, has asked creditors to accept delayed payments on nearly $60 billion in liabilities. The company timed the release of this news to coincide with a three-day Islamic holiday, hoping to blunt the impact it might have on regional markets. In their statement the company said it will be restructured by Dubai's government and they're asking creditors to wait six months on payments. A Bank of America analyst summed up the problem. The real fear is that this could escalate to a "major sovereign default" similar to the market meltdowns felt by Russia in the 1990s and Argentina in the early 2000s. This reinforced fears that the global economic recovery is not as strong as investors hope and it also fanned the flames over a crash in commercial real estate. Naturally investors surged into "safe" investments like U.S. treasuries and the dollar.

The sudden rise in the dollar over the last 48 hours has pushed commodities lower. Crude oil fell to a six-week low near $72.40 before bouncing back. Oil is currently down about 2.6% around $76 a barrel. Gold futures plunged $50 overnight but the commodity is rebounding quickly. Gold has pared its losses to less than $10 and is still trading near $1,180 an ounce.

Meanwhile in other news the focus is on retailers and the "Black Friday" crowds. It sounds like crowds have been stronger than expected. A few diehard shoppers started lining up on Wednesday afternoon and spent Thanksgiving sitting on the sidewalk to save their place in line for Friday morning. A few stores actually opened on Thanksgiving to avoid any dangerous push of people on Friday morning. For those stores that did open early on Friday, retailers seemed to be more organized for it. The hot items this year were laptops, netbooks, and flat-screen TVs.

Currently the S&P 500 index is off about 1.2% at 1097. At its worst levels the S&P 500 traded just under the 1084 level this morning. The NASDAQ gapped open lower and hit 2114 but the intraday bounce has brought it back to 2152 (-1.0%). The Dow Industrials are off about 100 points near 10,363. The DJIA lows this morning were 10,231. The small cap Russell 2000 index slipped to 577 this morning and tagged its 100-dma before bouncing. The Russell is still down 1.7% at 582.

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index:

The market is set to close shortly. Look for comments on the play list in this weekend's newsletter.