Europe drops after Russia sanctions, ECB; Wall Street slips

NEW YORK Thu Aug 7, 2014 4:32pm EDT

Pedestrians walk past an electronic board showing the various stock prices outside a brokerage in Tokyo August 6, 2014.  REUTERS/Yuya Shino

Pedestrians walk past an electronic board showing the various stock prices outside a brokerage in Tokyo August 6, 2014.

Credit: Reuters/Yuya Shino

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NEW YORK (Reuters) - European shares slumped and the euro lost ground on Thursday and investors moved to safe-haven government debt after a stronger-than-expected move by Russia to ban certain imports from Europe and the United States.

Initial gains on Wall Street faded, with the S&P 500 just below its 100-day moving average of around 1,913, a significant technical support level. More broadly, MSCI's world equity index .MIWD00000PUS lost 0.5 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 sanctions Europe has put in are real and have teeth, the problem is they are going to bite both ways. So you have a slow European recovery that is going to get even slower, which could push it back over the edge," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

"I don’t get worried until we hit the 200-day (moving average), but I’m starting to get a little bit concerned."

The ECB held borrowing rates at record low levels on Thursday. Europe's main bourses closed lower, with London's .FTSE down 0.6 percent, Germany's DAX .GDAXI off 1 percent and France's CAC 40 .FCHI down 1.4 percent. The move for the DAX put the index down 10 percent from its record closing high in early July. [.EU]

"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 1.069 percent while the 10-year UK gilts yield touched a one-year low of 2.476 percent. [GVD/EUR]

Gold climbed back above $1,300 an ounce to hit a high of $1,314.40, breaking through technical resistance that could spur further gains, and 10-year U.S. bond yields touched near a two-month low at 2.43 percent. [US/]

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 $1.3363.

Portuguese stocks .PSI20, slumped 2.3 percent, and bonds PT10YT=TWEB were again showing significant weakness amid worries the country and its banks will have to pay dearly for the rescue of Banco Espirito Santo. [ID:nL6N0QD2EF]

U.S. stocks succumbed to concerns over Russia after a higher opening as initial enthusiasm from an unexpected drop in jobless claims waned.

The Dow Jones industrial average .DJI fell 75.01 points or 0.46 percent, to 16,368.33, the S&P 500 .SPX lost 10.65 points or 0.55 percent, to 1,909.59 and the Nasdaq Composite .IXIC dropped 20.09 points or 0.46 percent, to 4,334.97.

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 .IRTS, which is down nearly 9.3 percent over the past three weeks, lost 0.3 percent while its rouble-based MICEX shed 0.1 percent, giving it a 6.3 percent decline over the same period.

U.S. crude CLc1 settled up 42 cents to $97.34 while Brent LCOc1 broke through the $105 mark to settle up 85 cents at $105.44 per barrel. [O/R]

(Editing by Nick Zieminski and Meredith Mazzilli)

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Comments (16)
WCTopp wrote:
We have no cultural, historical, or strategic interest in Ukraine and it’s on the other side of the world. There are no humanitarian issues beyond those that infuse all rebellions and wars. Why are we doing this?

Aug 07, 2014 7:22am EDT  --  Report as abuse
gentalman wrote:
This is all speculative! but giving jolt to all economies of the world for sake of small country like Ukraine. Looks strange.
Most of the wars are fought out of EGO of only one person.The here is Poroshenko, Ukraine’ president who instead of allowing rebels on table,used military to crush them…..this ultimately magnified into big one small rope pulling.

Aug 07, 2014 7:36am EDT  --  Report as abuse
speakfreely wrote:
As I posted before, it’s hardly going to be a hardship now that harvest season is ending and the punishment is on the Russian people who will not get the produce necessary for good health.

Also, the Russian threat of banning EU and US airlines flying in its airspace, the Delta Airlines CEO said on CNBC yesterday, that the increased cost of fuel is offset by the savings in airspace fees. I am betting the traveler will support and understand the longer flight time in favor of safety….now that we know how reckless the Russians and pro-Russian rebels are with their missiles.

Aug 07, 2014 8:18am EDT  --  Report as abuse
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