Gulf stock markets crumbled and credit conditions tightened on Monday as fears mounted that fallout from Europe and the United States would strike the Arab peninsula.
Blue chip shares in banks and builders tanked, especially in Dubai, with engineering group Arabtec tumbling 7 percent, bank Emirates NBD down 5 percent and Union Properties down 7.7 percent.
In the Gulf's biggest stock market, Saudi Arabia, the leading index fell over 9 percent, while shares in big energy exporter Qatar fell 4.2 percent.
"The main issue is that investors are a little bit worried about contractors collecting the money from developers," says Alfred Fayek, director of the GCC institutional desk team at EFG-Hermes.
"If the real estate sector is struggling, contractors will be amongst the biggest losers."
"Foreign institutions are heavily selling in the market. Some of them are exiting completely," says Amro Motasim, chief trader at Ahli Bank.
"One of the reasons for the sell-off is the turmoil in the United States and possibly now Europe," he said.
As markets slumped, credit tensions intensified and interbank lending rates in key Gulf states climbed, hitting levels not seen since late 2007 or early 2008. United Arab Emirates one-month rates rose to 4.51875 percent while Saudi Arabia one-month rates hit 4.11750 percent.
Central banks in Europe and the United States have pumped record amounts of liquidity into the interbank markets as fear grips lenders.
In September, the UAE central bank said it would offer banks short-term funds through a 50 billion UAE dirham ($13.61 billion) facility in an emergency move to ease tensions in the money markets.
Dubai, which boasts the world's tallest building and massive man-made palm-shaped islands, has been the centre of a real estate boom since 2002, fuelled in part by a surfeit of petrodollars in the region.
But a global credit crunch is weighing heavily on parts of the real estate market and has chased away many speculators and casting doubts over the sustainability of current growth levels. - Reuters