GLOBAL MARKETS-Stocks wobble on Ukraine news, bond yields slide

Fri Aug 15, 2014 5:03pm EDT

* Ukraine news sparks market turmoil, but stocks pare losses

* German Bund yields plumb record lows below 1 pct

* Safe-haven yen, Swiss franc gain (Adds close of U.S. markets)

By Herbert Lash

NEW YORK, Aug 15 (Reuters) - Global equity markets seesawed and government bond yields fell sharply in a flight to safety on Friday after Ukraine said its artillery shelled a Russian armored column on Ukrainian soil in a report that raised fears of escalating tensions.

The government in Kiev said its artillery partially destroyed the Russian column in fighting overnight, but Russia denied its forces had crossed into Ukraine and called the Ukrainian report "some kind of fantasy."

Investors have worried about a worsening stand-off between Ukraine and Russia, even as recent signs of easing tensions had lifted equity markets, especially in Europe. Investors on Friday were less than sure about the seriousness of the fighting.

"The fact that the market sold off relatively hard on the Ukraine report but came back in the last hour or so is a reflection of us not getting any additional confirmation on the Russian column being attacked," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.

MSCI's gauge of global equity performance pared losses in late trading to end at break-even, while the benchmark S&P 500 closed only 0.01 percent lower on the day. But bond prices reflected a rush into traditional safe havens.

The yield on German 10-year Bunds dropped to a record low of 0.958 percent in their biggest weekly percentage fall in almost 11 months. The 10-year U.S. Treasury slid to 2.3415 percent, and 10-year UK bond yields fell to 2.328 percent at the close, the lowest since August 2013.

"The falling yield levels are a reaction to panic," said Chris Orndorff, a portfolio manager at Western Asset in Pasadena, California.

Most U.S. stock indexes also pared losses to trade slightly lower, but the tech-heavy Nasdaq ended in positive territory.

The Dow Jones industrial average closed down 50.67 points, or 0.3 percent, to end at 16,662.91 and the S&P 500 lost 0.12 point, or 0.01 percent, to 1,955.06. But the Nasdaq Composite added 11.925 points, or 0.27 percent, to 4,464.927.

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.

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 fell as much as 0.09 percent against the yen to 102.34 yen, after hitting its highest in more than a week. The dollar last traded at 0.9027 franc, down 0.4 percent.

The euro, meanwhile, tumbled versus the Swiss franc to its lowest since January 2013. It was last at 1.2093, down 0.19 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 $1.46 to settle at $103.53 a barrel, while U.S. crude rose $1.77 to settle at $97.35 a barrel. (Reporting by Herbert Lash; Additional reporting by Nigel Stephenson in London; Editing by Dan Grebler and Chizu Nomiyama)

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