* Stock prices tumble after military intervention in Ukraine
* Russia hikes interest rate after ruble slides
* Brent crude at 2-month high on fear Putin may cut gas flow
* Russian stocks fall 11 pct; European bank shares slump
By Herbert Lash
NEW YORK, March 3 Russia's intervention in
Ukraine drove up crude oil and prices for gold and government
debt on Monday as the heightened tensions spurred investors to
seek safe havens and sell any exposure to the region.
Crude prices rose more than $2 a barrel, gold futures jumped
2 percent and prices of top-rated euro zone government bonds
surged. The aversion to risk took a steep toll on stock markets,
with the Moscow bourse slumping 11 percent, wiping nearly
$60 billion of value off Russian companies.
Stocks across Europe and on Wall Street also took a beating.
Market volatility indexes, a sign of investor apprehension,
surged, with the Euro STOXX Volatility Index spiking
30.4 percent in its biggest one-day gain since 2011. The U.S.
CBOE volatility index surged 20 percent at one point.
"Investors had underestimated the risks of an escalation in
Ukraine, so the events over the weekend are a wake-up call for
the market," said David Thebault, head of quantitative sales
trading at Global Equities in Paris.
President Vladimir Putin's forces tightened their grip on
the Crimea region of Ukraine, sparking the stock plunge in
Moscow and forcing Russia's central bank to spend $10 billion of
reserves to prop up the ruble.
Ukraine said Russia was massing armored vehicles on its side
of a narrow stretch of water closest to Crimea after Putin
declared over the weekend that he had the right to invade his
neighbor to protect Russian interests and citizens.
The ruble traded off about 1.45 percent after earlier
touching record lows against the dollar and the euro. The
central bank lifted its base lending rate by 1.5 percentage
points to 7 percent at an unscheduled meeting.
Russia's sovereign dollar bonds also fell,
while the cost of buying five-year swaps to insure against a
Russian debt default jumped 33 basis points.
Ukraine's hryvnia currency fell to a record low
against the dollar, pushing the country's dollar bonds down 6
points. Safe-haven German Bund futures settled up 76
ticks at 145.14.
Banks took the most points off European stock indexes, with
lenders exposed to Ukraine and Russia falling sharply. The Euro
STOXX banks index fell 3.8 percent in the biggest drop
since last August. Austria's Raiffeisen slumped 9.6
percent, while France's Societe Generale fell 5.4
percent and Italy's UniCredit lost 6.2 percent.
Other companies with significant exposure to Russia also
fell, with carmaker Renault shedding 5.4 percent and
brewer Carlsberg losing 5.3 percent.
The pan-European FTSEurofirst 300 index fell 2.2
percent to close at 1,318.24.
No major European stock market escaped the sell-off, with
Germany's DAX particularly hard hit, falling 3.4
percent in its biggest single-day drop since May 2012.
France's CAC-40 index fell 2.7 percent, and the
Italian stock market slid 3.3 percent.
The declines followed overnight weakness in Asia, with
MSCI's broadest index of Asia-Pacific shares outside Japan
down 0.9 percent and Japan's Nikkei 225
skidding 1.3 percent.
The Dow Jones industrial average fell 167.64 points,
or 1.03 percent, at 16,154.07. The Standard & Poor's 500 Index
was down 14.92 points, or 0.80 percent, at 1,844.53. The
Nasdaq Composite Index was down 33.03 points, or 0.77
percent, at 4,275.09.
For U.S. investors, Russia's intervention in Ukraine comes
just as economic data has been expected to improve and provide
further upside for stocks on Wall Street, noted David Joy, chief
market strategist at Ameriprise Financial.
Data released on Monday showed renewed strength in U.S.
manufacturing. But tensions over Ukraine have changed the
investment outlook at a time that valuations for U.S. equities
are not cheap, Joy said.
"Being expensive, it makes sense to me to take some risk off
the table and wait to see how this plays out," he said.
U.S. factory activity rose in February to its highest level
since May 2010, according to financial data firm Markit.
Separately, the Institute for Supply Management said its index
of U.S. factory activity rose to 53.2 in February, topping
The dollar and yen gained as investors sought the safety of
those currencies after Russia's intervention in the Crimean
The greenback was also supported by economic data showing an
increase in U.S. personal income and spending in January in the
midst of one of the worst winters in recent memory.
The dollar index was up 0.48 percent to 80.076. The
dollar's gains pushed the euro 0.49 percent lower at
"Investors turned to classic safe havens amid heightened
tensions in Ukraine," said Joe Manimbo, senior market analyst at
Western Union Business Solutions in Washington.
Crude oil prices jumped. Brent crude hit a peak of
$112.39 a barrel, the highest level since Dec. 30. Brent settled
$2.13 higher at $111.20 a barrel. U.S. crude jumped $2.33
to settle at $104.92 a barrel.
Gold futures settled up $25.70, or 2.2 percent, at
$1,350.3 an ounce.
U.S. government bond prices rose, with the 10-year note
up 15/32 in price to yield 2.6065 percent.