European shares extended their steep fall on Friday, after suffering their biggest one-day drop in seven months a day earlier, as concerns about debt problems in Dubai continued to dent appetite for risky assets.

By 0806 GMT, the FTSEurofirst 3000 was down 1.4 per cent at 974.94 points, having fallen 3.3 per cent on Thursday.

Japan's Nikkei hit a 4-month closing low on Friday after Dubai, part of the oil-exporting United Arab Emirates, earlier this week said it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt.

"We are facing day one after the 'Dubai-shock', but unfortunately this effect seems not to be over yet," said Roger Peeters, strategist at Close Brothers Seydler.

"The unknown: How will the US market as the worldwide most important market place react on the development in the Middle East. Perhaps the answer on this question will not be given today," he added.

US stock markets were closed on Thursday due to the Thanksgiving holiday, and the trading session on Friday will end early at 1pm local time.

In Europe, banks took most points off the FTSEurofirst 300, with Natixis, HSBC, Deutsche Bank and UniCredit falling between 2.1 and 3.8 per cent.

France's CAC, Germany's DAX and Britain's FTSE 100 were down between 1.5 and 1.7 per cent.