GLOBAL MARKETS-Europe nervy as Russian assets hit by new sanctions talk

Mon Jul 28, 2014 7:52am EDT

* Russia stocks tumble anew after new sanctions, on legal
issues
    * China stocks gain after jump in industrial firm profits
    * Dollar index hovers near 6-mth highs as euro sags
    * This week's U.S. data eyed for directional cues

    By Marc Jones
    LONDON, July 28 (Reuters) - The euro was stuck near its
lowest level since November and Russian markets tumbled for a
third straight day on Monday as new European sanctions for
Moscow chilled the already frosty relationship between the two.
    The 28-nation European Union reached an outline agreement on
Friday on its first economic sanctions on Russia. Its
increasingly tough stance was underscored by German finance
minister Wolfgang Schaeuble, who said the "top priority" was
peace rather than economic interests. 
    Russia warned the moves would hamper cooperation between the
two and undermine the fight against terrorism, although Foreign
Minister Sergei Lavrov said on Monday that Moscow would not
impose tit-for-tat measures.  
    Europe's main bourses were flat in subdued trade as
strong earnings updates and relief over Russia's response, and
that the EU measures had steered away from Russia's gas
industry, balanced concerns about the impact of the sanctions.  
    There was more acute pain for Moscow stocks, however, with
their woes compounded by an international court ruling that
Russia must pay shareholders in defunct oil producer Yukos $50
billion for expropriating assets. That would be a big hit for a
country teetering on the brink of recession. 
    Moscow's dollar-denominated RTS index slumped 2.5
percent in response, its rouble-traded peer MICEX fell
1.8 percent and the rouble dropped over half a percent against
both the dollar and the euro.
 
    "What we have today I think is largely because we have seen
Germany stepping up rhetoric on tougher sanctions on Russia,"
said Vasileios Gkionakis, Global Head of FX Strategy for
UniCredit in London.
    "Saying stability and peace is the top priority rather than
economic interests are strong words. The rouble is definitely
not a currency that I like." 
    European shares' nerves over Ukraine and Russia were
partially offset by a small number of positive company updates
and after the latest rise in Chinese stocks had helped Asian
markets hit a new three year-high.    
    Nevertheless, the FTSEurofirst 300 index of top
European shares struggled, trading flat at 1,371.40 points,
after losing 0.7 percent on Friday. Wall Street was also
expected to start little changed ahead of a flurry of PMI and
manufacturing data.     
  
          
    FED FOCUS  
    At least three civilians were killed in overnight fighting
in eastern Ukraine, after fierce skirmishes over the weekend had
prevented international monitors reaching the crash site of the
downed Malaysian Airlines plane that killed almost 300 people.
    As Russian debt slid, benchmark bonds of Germany and Austria
 , two of the countries with the
closest economic ties to Russia - also saw minor selling though
the ECB's pledge of record low interest rates limited the moves.
 
    Despite the geopolitical uncertainty, there was little shift
among the major currencies as attention remained firmly on the
global recovery and when big economies like the United States
are likely to start raising interest rates again. 
    The dollar was hovering at a six-month high against a
basket of currencies while the combination of the tensions with
Russia and the greenback's current strength kept the euro pinned
near an eight-month low at $1.3435. 
    Analysts and traders are ready for a busy week of
U.S.-focused action including a Federal Reserve meeting and GDP
data on Wednesday and non-farm payrolls figures on Friday.
 
    "We think the euro-dollar move may pause for breath at the
start of this week before another shift lower at the end of the
week," said Adam Myers, head of European currency strategy at
Credit Agricole in London.
    "The market is clearly short on the euro but there doesn't
quite seem to be the fuel over the next day or two to drive it
much lower and that may squeeze some of those positions."
    In commodities, Brent crude slipped below $108 a barrel as
fighting between Israel and Hamas Islamist militants subsided in
Gaza, although the tense situations there as well as in Libya,
eastern Ukraine and Iraq all limited the fall.
    Brent shed 86 cents to $107.46 a barrel after a 1
percent gain last week. 
    Gold also slipped under pressure from the stronger dollar
but was supported near $1,300 an ounce by its safe-haven appeal.

 (Additional reporting by Vladimir Soldatkin in Moscow and
Patrick Graham in London; Editing by Catherine Evans)