NEW YORK — This was the sideswipe investors had feared.
The stock market is in the middle of one of the great rallies of a generation, but for weeks there has been a nagging fear that bad news was never far off. The news came from Dubai, a wealthy Middle Eastern city-state that many Americans probably couldn’t find on a map. Concerns that a government-backed investment company risked defaulting on $60 billion in debt ripped through world markets and served as a reminder of how fragile the financial system remains a year after it nearly collapsed.
The Dow Jones industrial average slumped 155 points Friday before trading ended three hours early due to the Thanksgiving holiday. The Dow fell as much as 233 points. The day’s broad retreat from riskier assets pushed Treasury prices higher. The dollar gained against most other major currencies and commodities tumbled.
European stocks fell sharply Thursday as U.S. markets were closed for Thanksgiving. That prompted a steep drop in the U.S. markets Friday. Europe regained some of its losses Friday.
Now the question that will dog investors over the weekend is whether the markets will shrug off a financial crisis in the Middle East or seek protection in more conservative investments. That could end a rally that has seen the Dow surge 62.5 percent since March 9.
Stocks ended well off their lows but analysts cautioned that the shortened trading day and scarcity of investors meant the real test for the markets will come next week.