UPDATE 3-Dubai debt delay rattles European banks

* Europe bank stocks down 5 pct, biggest fall since May

* HSBC, RBS, Lloyds, ING, Barclays all fall sharply

* Other shares hit include LSE, Porsche, Informa

(Adds details on bank loan exposure)

By Steve Slater and Christopher Mangham

LONDON, Nov 26 (Reuters) - European banks took their biggest tumble for six months on Thursday on concern about potential exposure to debt problems in Dubai, and firms where Middle Eastern investors own big stakes were also under pressure.

Dubai, whose extravagant building projects have been largely put on hold since the global financial crisis, has said it would ask creditors at its flagship firms Dubai World and property developer Nakheel to delay repayment on billions of dollars of debt. [ID:nGEE5AP167]

By 1650 GMT on Thursday the DJ Stoxx European bank index .SX7P was down 5 percent at 218.1 points, its steepest one-day drop since mid-May.

Companies with significant Middle Eastern shareholders, such as the London Stock Exchange (LSE.L), were also hit by concern the holdings could be cut to meet obligations at home.

"The worry is about the exposure of the banks given the rapid pace of expansion in Dubai and around the area in the last few years," said one bank analyst, who asked not to be named.

Europe's biggest bank HSBC (HSBA.L) fell 4.8 percent, Royal Bank of Scotland (RBS.L) and ING (ING.AS) both tumbled over 7 percent and Lloyds Banking Group (LLOY.L) lost 6 percent.

They were among nine banks who were bookrunners on an outstanding $5.5 billion syndicate loan to Dubai World in June 2008, according to Thomson Reuters LPC data. Banks may have sold down their loan exposure in the secondary market, and one analyst estimated that bookrunners typically retain only about 10-15 percent of a loan or bonds. [ID:nGEE5AP10B]

HSBC and RBS declined to comment. ING said it had a negligible exposure to Dubai World bonds and saw no reason to divert from current guidance on risk costs.

Lloyds said it had a "modest" exposure to Dubai World, but said it did not represent a material threat.

Other bank shares under pressure included Barclays (BARC.L), which fell 8 percent, and Standard Chartered (STAN.L) and Deutsche Bank (DBKGn.DE), both down 6 percent. BNP Paribas (BNPP.PA), Credit Suisse (CSGN.VX) and Societe Generale (SOGN.PA) all shed over 5 percent.

UBS (UBSN.VX) was among those playing down its exposure, saying it had a small but not material exposure to Dubai and Norway's DnB NOR DNBNOR.OL said it had lent nothing to Dubai World and had just $300 million exposure to Dubai.

Worries about debt default spread across markets. "There are concerns regarding the extent of the exposure of the UK banks to Dubai, hence sterling is coming under pressure," said Ian Stannard, currency strategist at BNP Paribas. [ID:nGEE5AP0MS]

Jitters around Greek banks and their reliance on European Central Bank funding and the impact of a weak economy added to a fragile mood, dealers and analysts said.

The U.S. market was closed for the Thanksgiving holiday.

DEBT DELAY

Dubai said on Wednesday that the delayed repayment of debt was a first step toward restructuring Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.

The news has sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling. State-run Dubai World has $59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai's total debt of $80 billion. [ID:nGEE5AO2L1]

"This was a surprise to all bankers, and probably to the management of DW as banks had been progressing well with refinancing discussions," a senior loans banker active in the Gulf said on Thursday.

"It sounds like a political decision taken right at the top which has caused Dubai immense PR damage. This is very serious and will have implications across the region," he said.

Shares in the LSE dropped 7 percent on worries that 22 percent shareholder Borsa Dubai might sell down its stake.

German carmaker Porsche (PSHG_p.DE), in which the Qatari Investment Authority holds a stake of about 10 percent, was another casualty, dropping 5 percent.

"Everything that is in Arabian hands is getting sold at the moment," said a Frankfurt-based trader.

Luxury auto peer Daimler (DAIGn.DE), in which Abu Dhabi's Aabar Investments owns a 9.1 percent stake and Kuwait another 6.9 percent stake, also fell, as did British grocer J Sainsbury (SBRY.L), in which the QIA owns about 26 percent.

UK publishing and events firm Informa (INF.L), which arranges many Middle East trade fairs, tumbled 8 percent. (Additional reporting by Mark Potter in London and Gilbert Kreijger in Amsterdam; Editing by Erica Billingham and Elaine Hardcastle) ((steve.slater@reuters.com; +44 207 542 4367; Reuters Messaging: steve.slater.reuters.com@reuters.net))