GLOBAL MARKETS-Stocks drop on rising Ukraine tensions, oil gains
* European shares fall sharply, German index down 2 percent
* Strong U.S. jobs growth at first lifts equity markets
* Dollar rises from four-month low, bond prices fall
* Oil prices rise on heightened Ukraine concerns
By Herbert Lash
NEW YORK, March 7 (Reuters) - A surprisingly strong U.S. jobs report on Friday sent bond and gold prices sharply lower and initially lifted equity markets, but mounting tensions over Ukraine led stocks in Europe and elsewhere to retreat, while U.S. shares ended little changed.
Diplomatic efforts to cool the crisis in Ukraine calmed markets earlier in the week, but as tensions rose over Russia's intervention in Crimea, investors tried to shield themselves before the weekend from any potential confrontation.
European blue chips exposed to Russia and Ukraine came under renewed pressure as Germany's DAX index, considered the most vulnerable to any fallout, fell 2.0 percent, the biggest drop among major regional indices.
The Euro STOXX Volatility Index, a sign of investor apprehension, jumped 14.9 percent. But its U.S. counterpart, the CBOE Volatility Index, rose less than 1 percent.
President Vladimir Putin rebuffed a warning from U.S. President Barack Obama over Moscow's military intervention in Crimea, saying on Friday that Russia could not ignore calls for help from Russian speakers in Ukraine.
Putin said in a statement after an hour-long telephone call that Moscow and Washington remain far apart, giving investors a reason to take money off the table before the weekend.
"People are a little bit nervous to go into the weekend with fully loaded long positions, given the ongoing Ukraine crisis," said Zeg Choudhry, head of trading at Northland Capital Partners in Ilford, Britain.
The FTSEurofirst 300 index of top European shares extended losses into the close, finishing down 1.3 percent at 1,326.70.
MSCI's all-country world equity index retreated to trade 0.3 percent lower after trading just off peaks last seen at the end of 2007.
Wall Street was mostly flat, with the better-than-expected U.S. nonfarm payrolls report pushing the benchmark S&P 500 index to a fresh intra-day record high before it retreated.
The Dow Jones industrial average closed up 30.83 points, or 0.19 percent, at 16,452.72. The S&P 500 gained 1.01 points, or 0.05 percent, to 1,878.04 while the Nasdaq Composite dropped 15.903 points, or 0.37 percent, to 4,336.223.
For the week, the Dow rose 0.8 percent, the S&P 1.0 percent and the Nasdaq 0.7 percent.
U.S. Treasuries yields rose to their highest in six weeks after the February jobs report eased fears of an abrupt slowdown in economic growth and kept the Federal Reserve on track in reducing its monetary stimulus.
U.S. employers added 175,000 jobs to payrolls after creating 129,000 positions in January, the U.S. Labor Department said. However, even as job growth accelerated sharply, the unemployment rate rose to 6.7 percent from a five-year low of 6.6 percent.
Benchmark 10-year Treasury notes dropped 18/32 in price, the yield rising to 2.82 percent, the highest since Jan. 23. It was last down almost 15/32 in price to yield 2.7915 percent.
German Bund futures rose 6 ticks to settle at 142.24, clawing back some ground after suffering their biggest one-day fall since late December on Thursday after the European Central Bank refrained from new stimulus measures.
The dollar rose from a four-month low. The dollar index , a composite of six currency pairs, traded 0.07 percent higher at 79.717. It earlier hit a bottom of 79.433 last seen on Oct. 29.
The dollar was up 0.24 percent against the yen at 103.31 yen, while the euro rose 0.1 percent to $1.3872.
U.S. COMEX gold futures for April delivery fell $13.60 to settle at $1,338.20 an ounce,
Crude oil rose on the U.S. jobs report and Ukraine, offsetting a seasonal slowdown in demand, and analysts expected more traders to take net long positions.
"It is definitely a good idea to have some length ahead of a weekend's worth of rhetoric about Ukraine," said John Kilduff, partner at Again Capital LLC in New York. "Any deterioration in the prospect for a reasonable outcome gets rapidly priced into the market."
Global benchmark Brent crude oil settled up 90 cents at $109.00 a barrel. U.S. crude rose $1.02 to settle at $102.58.