* Russian rouble hits 5-year low vs dollar, shares fall
* Euro hits 2-week low; soft data add to uncertainty
* Dollar index at 2-week high, U.S. yields at 2-week low
* Yuan rebounds but still below PBOC fixing
* Yellen testimony awaited
By Marc Jones
LONDON, Feb 27 Tension in Ukraine and Russia
curbed risk appetite on Thursday, weighing on world stocks and
pushing the euro, already under pressure from talk of interest
rate cuts, to a two-week low.
Sabre-rattling over Ukraine grew, with Russia's Defence
Ministry quoted as saying fighter jets along its western borders
have been put on alert, a day after it called a snap military
exercise of 150,000 troops.
Ukraine said it would regard any movements by the Russian
military in Crimea outside the Russian Black Sea fleet's base in
Sevastopol as an act of aggression.
The Russian rouble slid to a fresh five-year low against the
dollar, while Ukraine's hryvnia reached a
record low after its central bank abandoned its managed exchange
Wall Street was set for a subdued start, but the sharpening
rhetoric in Ukraine held down Europe's main markets.
German stocks on the DAX suffered their biggest drop in
a month and the euro dropped to a two-week low of
"The weakness in Europe today appears to be down to
geopolitical uncertainty and the associated rise in risk
aversion," said Robert Parkes, an equities strategist at HSBC in
There was plenty of additional pressure for the euro. A
downward revision to Spanish fourth-quarter GDP figures came
alongside ECB data showing little improvement in the amount of
credit reaching euro zone firms.
German inflation figures also suggested there would be scant
pick-up in the euro zone inflation when it is published on
The ECB meets next week and is under pressure to cut
interest rates again and dip back into its unconventional policy
cupboard to ensure the euro zone doesn't become mired in
FED IN FOCUS, YUAN STEADIES
The backdrop of geopolitical uncertainty saw investors head
for the safety of the dollar and U.S. Treasuries
, which both moved to two-week highs. The Japanese
yen and Swiss Franc also gained.
In bond markets, the possibility more moves are coming from
the ECB and a strong debt auction in Italy helped lower-rated
Italian and Spanish debt keep pace with safe-haven German
Futures prices pointed to another subdued start for Wall
Street, which failed to build on record highs on Wednesday.
Markets were also cautious ahead of testimony from Federal
Reserve Chair Janet Yellen, who is bound to face questions on
recent soft U.S. economic news and what it might mean for
If the view is that the recent icy weather is to blame,
investors are likely to expect the Fed to keep trimming its
bond-buying programme by $10 billion at each policy meeting and
end it completely by the end of the year.
"Given U.S. debt yields fell and that U.S. shares were
steady to softer, the dollar's strength should be regarded as a
reflection of risk aversion rather than rising confidence in the
U.S. economy," said Masafumi Yamamoto, chief strategist at
Among commodities, copper dropped to a three-month
low below $7,000 a tonne, extending its losses over the past
week on recent concerns about slower growth in China.
U.S. oil and gold both steadied. Bullion had hit a
four-month high on Wednesday but the stronger dollar left it at
$1,332.30 an ounce, off Wednesday's high of $1,345.35.
After its recent falls, the yuan also saw a second
day of relative calm, standing at 6.1279 per dollar, just
off Wednesday's low of 6.1351. A bounce in Chinese shares also
helped Asian shares eke out small gains.
Dealers suspect the People's Bank of China has engineered
the recent decline in its currency to inject more two-way
volatility into the market and wrong-foot speculators who had
bet on its continued rise.
"It's possible that the Chinese authorities think they need
a weaker yuan now to bolster the economy," said Hirokazu
Yuihama, senior strategist at Daiwa Securities.