* Markets focus on reaction to east Ukraine referendum
* China shares up on capital market reform hopes
* Mumbai shares up ahead of elections
* Oil rises on Ukraine concerns
* Euro under pressure after ECB comments
By Hideyuki Sano
TOKYO, May 12 Shares made a cautious advance on
Monday though gains were capped as investors braced for a
possible escalation in Ukraine's civil conflicts after anti-Kiev
rebels declared victory in a referendum on self-rule.
Hopes of capital market reform boosted Chinese shares while
Indian shares surged to record high on the prospect of a more
business-friendly government winning India's general election,
with exit polls later coming out later in the day.
These expectations helped to lift MSCI's broadest index of
Asia-Pacific shares outside Japan 0.6 percent.
Hong Kong shares rose 2.2 percent while India's
benchmark index rose as much as 1.8 percent and the
Indian rupee also hit nine-month high.
European shares are also expected to rise, with Germany's
DAX seen gaining as much as 0.4 percent and Britain's
FTSE up to 0.2 percent.
"Given a dearth of trading factors today, markets will pay
attention to how Kiev and Moscow will react to the results of
referendum," said Masafumi Yamamoto, chief strategist at
Organisers of the weekend referendum in Ukraine said nearly
90 percent had voted in favour, possibly opening the way for the
region to break away from Kiev in a conflict that is
increasingly out of control.
Western leaders have threatened more sanctions in the key
areas of energy, financial services and engineering if Moscow
disrupts a presidential election planned in Ukraine on May 25.
Concerns of more violence pushed up oil prices, with U.S.
crude futures rising above $100 per barrel.
"There could be military intervention by Russia, or more
armed operations by Ukraine and the West could impose more
sanctions on Russia. These could lead to falls in U.S. bond
yields and the dollar/yen," Praevidentia's Yamamoto said.
For now, U.S. Treasury prices dipped slightly, lifting the
benchmark 10-year yield to 2.636 percent, compared
to 2.623 percent at the end of last week.
The yen also weakened slightly, with the dollar trading at
101.98 yen, having found support around 101.40 last week.
Despite simmering geopolitical concerns, global shares have
been resilient, with the Dow Jones Industrial average
posting a record closing high on Friday. European shares
also hit a six-year high.
"At the end of the day, U.S. corporate earnings will be
little affected by Ukraine. Unless market sentiment drastically
changes, stocks are likely to be supported," said Takuro
Nishida, deputy manager of investment planning at Nipponkoa
One of the driving forces for stock markets is the prospect
of continued policy support from the Federal Reserve and the
European Central Bank.
Dovish comments from Fed Chair Janet Yellen last week
underpinned risk assets around the globe, including many
emerging market currencies.
European Central Bank President Mario Draghi warned on
Thursday that the euro's strength was a serious concern and that
the ECB was comfortable with taking more action to support
The euro has been on the defensive since then, and last
traded at $1.3762, not far from the one-month low of
$1.3745 hit on Friday.
There is little in the way of major economic data releases
on Monday. On Tuesday, industrial production and retail sales in
China and U.S. retail sales will be closely watched.
(Editing by Eric Meijer)