GLOBAL MARKETS-Euro, shares sag as Ukraine woes hit German confidence

Fri Jul 25, 2014 8:30am EDT

* Euro dips, European shares subdued after downbeat German
Ifo survey
    * Wall Street expect to open 0.2 percent lower
    * Russian shares, rouble, bonds fall, central bank surprises
with rate hike
    * Chinese shares post strongest week since September

 (Updates ahead of Wall Street open)
    By Marc Jones
    LONDON, July 25 (Reuters) - Signs that tensions between the
West and Russia are starting to hurt confidence in Europe's
dominant economy Germany left the euro near an eight-month low
on Friday and lifted the region's government bonds.
    European shares dipped - a lead Wall Street was expected to
follow by opening around 0.2 percent lower with the focus
on U.S. manufactured goods figures after what has been packed
week of company earnings. 
    Germany's Ifo survey had set the tone by revealing a hefty
fall in business confidence over the last few weeks, prompting
concerns the region's growth engine and driver of its recovery
could be stuttering. 
    It was the third consecutive fall in an index which monitors
the mood of thousands of German firms, and Ifo's economists
admitted the scale of the decline this month had come as a
surprise. 
    "Geopolitical tensions are taking their toll on the German
economy," Ifo said. "Companies were also less optimistic about
future business developments."
    The euro fell back towards Thursday's eight-month low
of 1.3438 and bonds from Germany to Greece made
ground as traders wagered the data upped the likelihood the
European Central Bank will need to provide the economy with
further support.
    Shares also clawed back some of their early losses.
keeping them on course for a second week of gains. It is a rise
that has helped world stocks gradually push back
towards the all-time highs they reached last month.
    Some encouraging U.S. company earnings, reassuring data from
China, and still record-low global borrowing costs have
persuaded investors to look past the rise in tensions in Ukraine
and Gaza this week.
    Chinese shares rose another 1 percent on Friday to
secure their biggest weekly gain - 5.6 percent - since September
last year.
    A survey on Thursday showed factory activity in the country
expanded at its fastest in 18 months, dovetailing with hopes
that Chinese authorities will drive through beneficial reforms
in the coming months and years.        
    At the other end of the spectrum, dollar-traded Russian
stocks fell over 1 percent to take their losses over the
last two weeks to 12 percent, while Russian bonds also fell as
the country's central bank unexpectedly raised interest rates.
 
    European officials are to continue talks later over plans to
squeeze Russia over Ukraine with further sanctions following the
downing of a Malaysian Airlines that killed almost 300 people.
    A deal is not expected to be struck until next week but
options being discussed include curbing Russian access to
capital markets and arms and energy technology that could hurt
both Russian banks and its huge oil industry. 
    
    GROWTH PROSPECTS
    As the week drew to a close in Asia, MSCI's broadest index
of Asia-Pacific shares outside Japan was down
about 0.3 percent but on track for solid weekly gain of more
than 1 percent. Hong Kong's benchmark index hovered around its
highest in more than three years after its best week since May.
    "The prospect for the global economy has not been too bad
thanks to recently strong U.S. shares and China data, but we
should not be overly optimistic," said Norihiro Fujito, senior
investment strategist at Mitsubishi UFJ Morgan Stanley
Securities in Tokyo.
    Fujito said that long-only investors have stayed on the
sidelines as events in Gaza and Ukraine have curbed their
appetite for risk. He also said many are also waiting for more
positive trading cues, after the International Monetary Fund cut
its 2014 forecast for global economic growth. 
    On Wall Street overnight, the S&P 500 eked out a
slight gain to its second record closing high in a row, even
after earnings painted a mixed picture of the economy. 
    After a run of solid tech sector results this week, Amazon
 reported a much bigger loss than expected. The biggest
U.S. online retailer's shares tumbled 10.6 percent in
after-hours trade, wiping more than $17 billion from its market
valuation. 
    
    EURO NEAR 8-MONTH LOW
    The downbeat Ifo survey pushed the euro back towards
Thursday's eight-month low of $1.3438 as another albeit
smaller-than-expected fall in lending to firms in new ECB data
further underscored the bloc's struggles. 
    The dollar, the dominant force in currency markets again
this week, was up slightly against the yen at a 2-week high of
101.90 aided by a rise in U.S. government bond yields.
 
    The yen showed little reaction to Friday's Japanese consumer
price data that was in line with forecasts and did not do much
to stir expectations for further monetary easing by the Bank of
Japan. Core consumer prices rose 3.3 percent in June from a year
earlier, matching forecasts.  
    Gold bobbed at $1,295 an ounce after dropping to a
one-month low overnight. U.S. crude edged down slightly
to $101.61 a barrel, while Chinese growth-attuned copper 
headed for its fifth weekly rise in six.
    Unrest in the Middle East and Ukraine continued to keep
investors alert for any developments that could have a wider
impact on risk sentiment and markets.
    U.S. Secretary of State John Kerry pressed regional proxies
to nail down a Gaza ceasefire on Friday as the civilian death
toll soared, threatening to spread Israeli-Palestinian bloodshed
to the occupied West Bank and Jerusalem. 

 (Additional reporting by Lisa Twaronite in Tokyo, editing by
John Stonestreet)
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