GLOBAL MARKETS-Ukraine crisis, caution on U.S. jobs help Bund yield to one-year low

Fri May 2, 2014 7:53am EDT

* 10-year Bund yield hits one-year low on pre-payrolls,
deflation caution
    * Payrolls forecast 210,000 increase in jobs, unemployment
rate dip to 6.6 pct
    * European shares tread water after 1.5 percent weekly rise
    * Russia, Ukraine assets fall as crisis escalates

    By Jamie McGeever and Marc Jones
    LONDON, May 2 (Reuters) - Global markets traded cautiously
on Friday, with uncertainty ahead of U.S. employment figures and
tensions in Ukraine pushing the yield on 10-year German Bunds to
the lowest in a year and leaving shares treading water.
    The move into the relative safety of government bonds also
included higher-yielding peripheral euro zone paper, pushing
returns on Spanish 10-year debt to a multi-year low, and helped
lift the dollar against other currencies.
    In focus is the U.S. April non-farm payrolls report, due at
1230 GMT. Hopes are for the figures to at least meet forecasts
of a 210,000 increase in jobs and a fall in the unemployment
rate to 6.6 percent. 
    But first quarter U.S. growth estimates are being cut
following weak construction data on Thursday, with some analysts
saying the world's largest economy might actually have
contracted as severe winter weather curtailed activity. 
    An escalation in violence in eastern Ukraine between
government forces and pro-Russian separatists also weighed on
investor sentiment. 
    News that U.S. drugmaker Pfizer had raised its offer
- later rejected - for Britain's AstraZeneca failed to
lift European shares, which were flat at 1353 points as
midday approached. Forecast-busting profits from Royal Bank of
Scotland also had little impact on the wider but fuelled
an 11 percent rally in the state-controlled bank's shares.
    "People are a bit nervous about payrolls," said Michael
Hewson, senior markets strategist at CMC Markets in London.
"Last month there was so much hype about it and it came out
below expectations. They don't want to get caught out twice, so
they are hedging their positions."
    With many European and U.S. indices at or close to record
highs, investors are reluctant to chase them higher, Hewson
added, especially ahead of a long holiday weekend in Britain.
    The FTSEurofirst 300 index of leading European shares
 was still set for a third consecutive week of gains,
however, up more than 1.5 percent since Monday.
   Germany's DAX and Britain's FTSE 100 index 
saw little movement while gains in Italy and Spain
 were balanced by a 0.3 percent fall in France's CAC 40
stock index.
    In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan ended up 0.4 percent. Tokyo
 dipped after another lacklustre week, while China's
markets were closed.
    
    PAYROLLS PENDING
    U.S. stock futures pointed to a flat open on Wall Street
  though the looming jobs data meant pricing was
little more than guesswork.
    Investor caution helped push Germany's 10-year government
bond yield to 1.45 percent, while the 30-year U.S.
Treasury bond yield was 3.43 percent having touched
3.4 percent late on Thursday.
    Spain's 10-year yield fell as low as 3 percent,
the least since September 2005 and close to its lowest ever.
Fears that low inflation will become entrenched in the euro zone
and elsewhere have helped bonds in recent months.
    Currency markets were calmer, with the dollar well supported
ahead of the payrolls report but major currency pairs trading in
tight ranges. The euro slipped 0.1 percent to $1.3853,
and the dollar rose 0.1 percent to 102.45 yen.
    "The bias is for a good jobs report, upwards of 200,000,
given all the indicators, ranging from the weekly jobless claims
to the ADP to the employment segment of the ISM survey," said
Jeremy Stretch, head of currency strategy at CIBC World Markets.
   
    
    UKRAINE UNREST  
    Oil remained top-heavy after Thursday's slip following
disappointing Chinese economic data and a survey showing U.S.
crude stocks rose last week to their highest level since 1982.
    Investors were also keeping a close eye on developments in
Ukraine where government forces attacked the rebel-held city of
Slaviansk and pro-Russia separatists shot down at least one
attack helicopter, killing a pilot. 
    Russian and Ukrainian assets both fell, bucking a generally
stronger trend across emerging markets. 
    U.S. crude futures rose 0.4 percent to $99.487 a
barrel, while Brent went in the same direction to $108.40,
although both were heading for weekly falls.
    Gold rose but was down on the week, while copper
, whose industrial uses make it sensitive to growth
expectations, was higher but set for its biggest weekly drop in
seven as concerns about China's economy continue to nag.

 (Additional reporting by Anirban Nag in London; Editing by
Catherine Evans)