GLOBAL MARKETS-Europe weaker after Russia sanctions, ECB; Wall St rises

Thu Aug 7, 2014 11:09am EDT

* European shares, euro dip to add to recent falls

* Russian troop build-up, sanctions check risk appetite

* Investors seek shelter in safe-haven bonds, gold

* Portugal's woes continue

* Wall Street up after claims data (Adds U.S. markets open, quote; changes dateline; previous LONDON)

By Chuck Mikolajczak

NEW YORK, Aug 7 (Reuters) - European shares and the euro fell on Thursday and investors retreated to safe-haven government debt after a stronger-than-expected move by Russia to ban certain imports from Europe and the United States.

Wall Street was higher in early trading after better-than-expected figures on weekly jobless claims. More broadly, MSCI's world equity index slipped 0.2 percent.

German government debt yields fell to all-time lows, on increased concern over the effect Ukraine's crisis will have on euro zone growth. The European Central Bank said following its monthly policy-setting meeting that a sanctions war could worsen the growth outlook on the continent, where demand is already weak.

The ECB elected to hold borrowing rates at record low levels on Thursday. Europe's main bourses were lower, with London's down 0.4 percent, Germany's DAX off 0.8 percent and France's CAC 40 down 1.2 percent.

"Geopolitical risks are heightened, are higher than they were a few months ago. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they ... have on other parts of the world," said ECB head Mario Draghi, in post-meeting comments.

Russia said on Wednesday it would ban all food imports from the United States and all fruit and vegetables from Europe in a stronger-than-expected answer to Western sanctions for Moscow's support for separatists in Ukraine.

German Bunds slid to a record low of 1.079 percent while the 10-year UK gilts yield touched a one-year low of 2.493 percent.

Gold climbed back above $1,300 an ounce to $1,305 and 10-year U.S. bond yields touched near a two-month low at 2.45 percent.

The tensions have, however, aided the ECB's efforts to push down the euro. The shared currency was hovering just above a nine-month low against the dollar at $1.3343.

Portuguese stocks, down 1.4 percent, and bonds were again showing significant weakness amid worries the country and its banks will have to pay dearly for the rescue of Banco Espirito Santo.

U.S. stocks were able to advance modestly despite the unexpectedly wide sanctions, as an unexpected drop in jobless claims added to evidence the world's largest economy is gaining strength.

The Dow Jones industrial average rose 34.78 points or 0.21 percent, to 16,478.12, the S&P 500 gained 5.02 points or 0.26 percent, to 1,925.26 and the Nasdaq Composite added 18.67 points or 0.43 percent, to 4,373.72.

The United States "can sustain not trading with Russia a lot longer than anybody else, that's why the market is not worried about that," said Matt Kaufler, portfolio manager at Federated Investors in Rochester, New York.

He said, however, it's "not the broadening of the sanctions, but the (potential) broadening of the military conflict" which could hurt markets.

As fighting has intensified on the ground in eastern Ukraine, NATO said Moscow had massed around 20,000 combat-ready troops on the Ukrainian border and warned of a possible advance.

Russia's dollar-denominated RTS index, which is down nearly 10 percent over the past three weeks, lost 0.5 percent while its rouble-based peer MICEX shed 0.3 percent, giving its a 6.5 percent decline over the same period.

U.S. crude was down 15 cents to $96.78 while Brent crept closer to the $105 mark, up 7 cents at $104.66 per barrel. (Additional reporting by Rodrigo Campos; Editing by Nick Zieminski)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article