DEEPENING fears about Dubai&rsquo;s debt problems shook European stock markets yesterday, with the FTSE 100 index suffering its worst one-day loss since March.<br /><br />The FTSE fell by 3.2 per cent, losing more than 170 points to 5,194.13, while leading indices in France and Germany were also down sharply. Wall Street was closed for Thanksgiving. <br /><br />Banking shares took a severe battering as investors worried about their exposure to the debt-laden emirate. Barclays and Royal Bank of Scotland plunged nearly eight per cent and Lloyds Banking Group fell by nearly six per cent, while Standard Chartered and HSBC were down by 4.8 per cent and 4.7 per cent respectively.<br /><br />The sell-off was sparked by the shock announcement on Wednesday night that Dubai would restructure its main investment company Dubai World, the owner of P&amp;O and the Adelphi office building in London, and asked creditors for a six-month standstill on debt repayments. The news triggered a heavy sell-off in Gulf bonds yesterday while debt insurance costs soared. Dubai&rsquo;s credit default swaps hit three-month highs of 500-550 basis points. The cost of insuring Qatari, Abu Dhabi and Bahrain debt also surged.<br /><br />Shares in the London Stock Exchange dropped by 7.4 per cent as investors fretted about the fate of the 20.56 per cent stake held by Dubai Borse. And nerves were frazzled when the LSE suffered a near four-hour trading outage. <br /><br />With $59bn (&pound;35.9bn) of liabilities, Dubai World is responsible for the bulk of Dubai&rsquo;s $80bn debt burden, accumulated during a construction spree that was brought to an abrupt halt by the global downturn. Analysts at Credit Suisse estimate European banks are exposed to half Dubai&rsquo;s debt pile, with Barclays and RBS badly hit.<br /><br />Dubai tried in vain to restore confidence by announcing that its profitable DP World, which operates over 40 ports around the world, would not be involved in the restructuring. DP World is majority owned by Dubai World but has a separate share listing.