Share prices in the City suffered their biggest fall since March today amid fears that a debt crisis in the millionaires’ playground of Dubai heralded a new phase in the global financial meltdown and a double-dip recession in 2010.

With Alistair Darling admitting that he had been forced to rip up his already gloomy forecasts for the UK economy this year, the FTSE 100 index of leading shares dropped more than 170 points – wiping £44bn off their value.

The market turmoil – which saw jittery investors retreat to the traditional safe havens of bonds, the Swiss franc and the US dollar – followed news that the government-owned conglomerate Dubai World had asked its creditors for a six-month debt moratorium.

As concerns grew that a fledgling economic rally stimulated by rock-bottom global interest rates might have run its course, the price of crude oil fell by almost $2 a barrel and speculators shunned riskier markets in emerging countries. Banks were the hardest hit stock market sector, and shares in HSBC and Standard Chartered – which are exposed to a property crash in Dubai – fell heavily.

“The crisis in Dubai has brought up speculation about how many more skeletons might be left in the cupboard,” said Richard McGuire, a strategist at Royal Bank of Canada in London.

Graham Turner, of consultancy GFC Economics, said: “It gives you a picture of the fact that credit problem persists, despite everything that’s been done.”

Andrew Clare, professor of asset management at Cass Business School, said: “This may be the first sign that people are thinking you can’t get back to the debt-fuelled halcyon days of 2007.

“I think this is just part of a wider problem. I just don’t understand the basis for the market rally: equity prices had gone too far. Investors are underpricing all the risks that are out there, and this is just one of them. Some of those risks are going to come home to roost, and this is just the first.

“And next year they’re going to have the shock of realising that interest rates can go up as well as down; and you’ve also got places like the UK, where taxes are going to have to go up and public spending will have to be cut – and the US, too, has some difficult decisions to make.”

Darling confessed to MPs todaythat the severity of the recession caught him by surprise, paving the way for a drastic cut in the Treasury’s growth forecasts in his pre-budget report next month.

Courtesy: www.guardian.co.uk