* All major European stock markets down 1-2.5 pct
* Russia hikes interest rate after rouble slide
* Gold at 4-mth high; Yen, Swiss franc also gain vs dollar
* Brent crude hits 2-mth high on fear Putin may cut gas flow
* Copper falls to 3-month low on China slowdown concerns
By Simon Jessop
LONDON, March 3 The rising threat of war between
Ukraine and Russia spooked markets and sent investors scurrying
for relative safety on Monday, pushing stocks down sharply and
lifting gold to a four-month high.
With Russian troops already on Ukrainian soil after an
incursion into Crimea, comments over the weekend from President
Putin that he had the right to invade the rest of the country
were treated as a declaration of war by Kiev.
Geopolitical ripples from those statements, which included
condemnation from the Group of Seven major industrialised
nations, fanned through markets, hitting Russian assets the most
and forcing the Russian central bank to aggressively raise
Russia's stockmarket nosedived 9 percent at the open
on Monday while the rouble fell 2 percent to record lows against
the dollar and the euro, and the central bank dramatically
lifted its key lending rate by 1.5 percentage points to 7
percent at an unscheduled meeting.
No major regional bourse escaped the aggressive selling,
with all down more than 1 percent and Germany's DAX
particularly hard hit, tumbling 2.5 percent.
That had 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, while futures for the U.S. Standard &
Poor's 500 slid 0.9 percent off Friday's record high.
"We can expect some very sharp moves in the ensuing couple
of days as markets and world leaders look to establish just how
much of a threat there is to not only to stability in the area
but stability across Europe," said James Hughes, chief market
analyst at Alpari UK.
Chief beneficiaries of the market-wide flight from risk were
gold, German benchmark debt and the Japanese yen and
other currencies perceived as safe-havens in times of heightened
volatility, while oil was supported by the demand outlook.
Concern about China's economy also weighed on markets after
a purchasing managers' index showed China's vast factory sector
contracted again in February.
Spot gold hit a four-month intraday high of $1,350 an
ounce, while the dollar dollar dropped to as low as 101.22
against the yen, its weakest in almost a month and
slipped back against the Swiss franc to near Friday's two-year
low of 0.8782 franc.
"It's a reaction to the escalation in tension in Ukraine
over the weekend ... the traditional risk proxies are getting
hit, and the safe havens are getting bid," said ANZ currency
strategist Sam Tuck in Auckland.
The euro shed 0.2 percent against the dollar to $1.3771
, slipping from Friday's two-month high as the euro zone
economy is seen as vulnerable because of its dependence on gas
supplies from Russia, part of which go through Ukraine.
Worries that Putin could act to crimp those gas supplies if
the situation escalates further, and the prospect of a typical
run-up in demand should war break out, boosted crude prices
across the board.
Brent crude, the European oil benchmark, rose as
much as 2 percent to a two-month high of $111.41 per barrel
before trimming gains slightly. U.S. crude futures
, meanwhile, hit a five-month high of $104.65.
On top of concerns about a military confrontation, it was
not clear if Ukraine's new interim government, formed only about
a week ago after pro-Russian former President Viktor Yanukovich
had been ousted, can secure funds to avoid default.
Kiev has said it needs $35 billion over two years to avoid
default, and may need $4 billion immediately. But Ukrainian
Finance Minister Oleksander Shlapak said on Saturday the country
was unlikely to receive financial assistance from the
International Monetary Fund before April.
Concerns over Ukraine sent the yield on 10-year U.S. debt to
a one-month low of 2.592 percent, before recovering
to trade at 2.62 percent ahead of the release of important
economic data this week, including manufacturing data on Monday
and payrolls data on Friday.
Kicking off this week's data was China, where a private
survey found Chinese factory activity shrank again in February
as output and new orders fell, reinforcing concerns about a
slowdown in the world's No. 2 economy.
That offset a more upbeat survey from the Chinese services
sector and pushed copper down to a three-month low.
China is the world's top metals consumer and the market is
already concerned about growing copper stockpiles in China.