GLOBAL MARKETS-Stocks retreat on Ukraine news, bond yields fall

Fri Aug 15, 2014 12:45pm EDT

* Report of fresh Ukraine tensions sparks market reversals

* Stocks retreat in Europe, Wall Street

* Bund yields plumb record lows below 1 pct

* Dollar strengthens versus euro (Updates market action to midday U.S. trading)

By Herbert Lash

NEW YORK, Aug 15 (Reuters) - Global equity markets retreated on Friday on news that Ukraine forces had engaged a Russian armored column on Ukrainian soil overnight, while yields on benchmark German bunds plumbed record lows below 1 percent.

Ukraine said its forces had attacked and partly destroyed the Russian column, a firefight that would mark a dramatic worsening of the conflict, if confirmed.

Investors have worried about a deepening stand-off between Ukraine and Russia, though recent signs of easing tensions had lifted equity markets, especially in Europe.

"It is hard to know how serious this is, but any sustained upturn in violence could lead to a short-term setback," said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management.

Despite the decline in equities, leading U.S. stock indexes remained on track for a second straight week of gains, and the benchmark S&P 500 is less than 2 percent from a record closing high set in July.

MSCI's all-country world equity index fell 0.19 percent, while the FTSEurofirst 300 index of leading European shares fell 0.45 percent to close at 1,323.10, after trading 0.8 percent higher earlier in the session.

Stocks also retreated on Wall Street.

The Dow Jones industrial average fell 72.73 points, or 0.44 percent, at 16,640.85. The Standard & Poor's 500 Index was down 4.44 points, or 0.23 percent, at 1,950.74. The Nasdaq Composite Index was down 5.70 points, or 0.13 percent, at 4,447.30.

The safe-haven yen and Swiss franc advanced after news of the Ukraine event. The Swiss franc hit a 19-month high against the euro and a three-week peak versus the dollar. The yen reversed losses against the dollar, turning higher.

The dollar was down 0.2 percent against the yen at 102.22 yen, after hitting its highest in more than a week. The dollar last traded at 0.9029 franc, down 0.4 percent.

The euro, meanwhile, tumbled versus the Swiss franc to its lowest since January 2013. It was last at 1.2098, down 0.1 percent.

Yields on German 10-year bunds fell to a record low of 0.952, according to Tradeweb pricings.

Ten-year UK bond yields fell to 2.359 percent, the lowest since August 2013, while U.S. Treasury 10-year yields fell to 2.3327 percent.

Crude oil prices rose on the Ukraine news, after Brent had stabilized close to a 13-month low on ample supplies of high-quality oil and signs that faltering global economic growth may cap fuel demand.

October Brent crude rose $1.22 to $103.29 a barrel, while U.S. crude rose $1.15 to $96.73 a barrel.

(Reporting by Herbert Lash; Additional reporting by Nigel Stephenson in London; Editing by Dan Grebler)