Retail stocks retreated 0.8 percent Tuesday as investors kept a wary eye on Dubai, where debts of government-controlled firms were downgraded by Moody’s Investors Service.

This story first appeared in the December 9, 2009 issue of WWD. Subscribe Today.

The S&P Retail Index fell 3.35 points to 404.08, following the Dow Jones Industrial Average, which fell 1 percent, or 104.14 points, to 10,285.97. The sell-off was global with the FTSE 100 down 1.7 percent in London, the CAC 40 declining 1.4 percent in Paris, the Hang Seng Index sliding 1.2 percent in Hong Kong and the Nikkei 225 down 0.3 percent in Tokyo.

Moody’s cut its ratings on six of Dubai’s government-related companies and said it was not counting on any government support for entities not formerly guaranteed by the state.

Dubai World, the emirate’s investment vehicle which, though its Istithmar subsidiary owns Barneys New York, last month asked creditors for a freeze on payments covering $59 billion in debt. The investment fund later said it would restructure the debt, and that Istithmar was on “stable financial footing” and was not part of the plan.

But Moody’s, which did not name Istithmar specifically, said it would keep its ratings of Dubai-owned issuers on review for downgrade based on uncertainty surrounding the restructuring, the potential loss of investor confidence and the long term impact on the Dubai economy.

A bit of deal making, however, did make for one particular bright spot in the fashion world.

Shares of The Talbots Inc. rose 14.2 percent to $8.23 after the misses’ retailer said it would use funds from a merger with BPW Acquisition Corp. and credit from GE Capital to pay off its debts and buy out Aeon (USA) Inc.’s 54 percent stake.

Shares of J. Crew Group Inc. ended flat at $42.92 Tuesday, but the retailer got an after-market boost from Standard & Poor’s, which revised its outlook on the firm’s debt to “positive” from “stable” based on a strong third-quarter showing.

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