Stocks Close Short Session Lower on Dubai Fears

NEW YORK (TheStreet) -- Stocks closed lower Friday after spending a day in the red, as markets absorbed concerns about Dubai's request to delay repayment of debt and investors ditched risky investments.

The Dow Jones Industrial Average closed down by 154.5 points, or 1.5%, to 10,309.9 during Friday's shortened trading session. The S&P 500 lost 19.1 points, or 1.7% to 1091.5 and the Nasdaq was down by 37.6 points, or 1.7%, to 2138.4. Still, the Dow finished the short week up 1.4%, while the S&P 500 added 1.8% and the Nasdaq's tacked on 1.4%.

Dubai's debt issues stole the spotlight in U.S. markets Friday, a day characterized by light trading volumes since markets were closed on Thursday for the Thanksgiving holiday and shut at 1 p.m. on Friday. Trading volume was 50% lower on the Nasdaq, compared to its 10-day average. Volumes for the Dow Jones Industrial Average and the S&P 500 were off by 37% and 44%, respectively, adding to the day's volatility.

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"Obviously, the debt restructuring has caught investors very much by surprise," said UBS analyst Saud Masud, who believes the UAE and Dubai governments wouldn't risk so much damage to their financial reputation unless it was essential to a larger plan of achieving long-term stability.

"We see the Dubai government as possibly accepting the challenge of restructuring 'Dubai Inc.' by allowing market forces to prevail. In other words, certain troubled entities will be forced to take the responsibility for restructuring their debt and work hard to rebuild themselves. This may significantly damage investor confidence in the short term ... nevertheless, further out, this approach might increase the strength of the corporate sector in Dubai and attract an investor base that is more focused on the longer term," Masud said.