GLOBAL MARKETS-Stocks, rouble rally as Putin says no need for force in Ukraine

Tue Mar 4, 2014 12:44pm EST

* World stocks rally; Russian shares, rouble, rebound

* S&P hits intraday record, FTSE posts biggest gain in 9 months

* Gold, yen and oil fall as Russia-West tensions ease

* U.S. criticizes Moscow's weekend move into Ukraine

By Richard Leong and Herbert Lash

NEW YORK, March 4 (Reuters) - Stocks and other risky investments, including battered Russian assets, rallied on Tuesday after Russia's president said he saw no need to use military force in Crimea for now, remarks investors saw as intended to ease tensions over Ukraine.

President Vladimir Putin delivered a robust defense of Russia's actions in Crimea, but he also sought to ease East-West tension over fears of war in the former Soviet republic. His comments reversed most of the markets' moves on Monday.

The rouble rose 1.2 percent to 36.05 to the dollar as Russian stocks jumped 5.3 percent, recouping almost half of the previous day's losses.

Putin told a news conference that Russia's use of force in Ukraine would be a choice of "last resort" and that sanctions being considered against Moscow by the West would be counter-productive.

Putin's remarks did not quell criticism from U.S. President Barack Obama, who said Russia's aggression in Ukraine is not a sign of strength. U.S. Secretary of State John Kerry, who was in Kiev, said Moscow was looking for a pretext to invade further into its neighbor.

As investors moved back into stocks, they unwound safe-haven positions in gold, yen and U.S. and German government debt. Oil prices fell as Putin's gesture reduced the chances that energy supply from Russia, the No. 2 world oil exporter, could be disrupted or subject to sanctions.

"In the short term, the market always over-reacts," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. "We got marginally good news today, but we don't know what's going to happen tomorrow."

Forrest said she expects volatility to return to the market as the situation in Ukraine remains fluid.

Despite uncertainties over Putin's next move and how the United States and Europe will respond, Wall Street stocks surged, outpacing Monday's losses as the benchmark S&P 500 index booked a new intra-day high.

European stocks also rose, with the pan-European FTSEurofirst 300 index closing at 1,344.83, up 2 percent, making up more than half of Monday's drop and staging its biggest one-day gain in nine months.

MSCI's all-country world stocks index, which tracks stocks in 45 countries, rose 1.2 percent to 410.05.

On Wall Street, the Dow Jones industrial average jumped 218.11 points or 1.35 percent, to 16,386.14, the S&P 500 gained 26.21 points or 1.42 percent, to 1,871.94 and the Nasdaq Composite added 75.689 points or 1.77 percent, to 4,352.99.

Safe-haven government debt on both sides of the Atlantic retreated, driving yields higher as demand for low-risk assets waned. The yields on 10-year U.S. Treasuries and German Bunds rose 7 basis points and 4 basis points to 2.67 percent and 1.60 percent, respectively.

"Respite with the Russia-Ukraine situation is taking some of the flight-to-quality bid out of the (U.S.) Treasury market," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.

"The rapid developments over the weekend, especially coming amidst mixed data in the U.S., for a brief interval, took the wind out of the sales of the risk-on trade," said Tipp.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan rose nearly 0.2 percent and Tokyo's Nikkei closed 0.5 percent as some foreign investors scooped up battered shares.

In currency markets, the euro gained 0.7 percent to 140.29 yen, but it drifted a tad lower versus the dollar at $1.3727. It recovered against the Swiss franc, another safe-haven currency, up 0.4 percent at 1.2177 franc.

"Given three days' worth of bad headlines, I think the market was just willing to take any sort of stability it can get," said Geoffrey Yu, a strategist with UBS in London.

Gold, another traditional safe haven, fell after rallying nearly 2 percent on Monday. Gold futures were last down 0.93 percent, at $1,337.7 an ounce.

Brent crude fell $1.95 or 1.75 percent at $109.25 a barrel, while U.S. oil futures lost $1.64 or 1.56 percent at $103.28 per barrel.

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