* 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 -
with the Moscow stock market down 9 percent - 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
Vladimir 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, spread through markets, hitting Russian assets the
hardest and forcing the Russian central bank to aggressively
raise interest rates.
Russia's stock market nosedived 9 percent at the open
on Monday while the rouble fell 2 percent to record lows against
the dollar and the euro before recovering to trade up 1.3
percent after the central bank dramatically lifted its key
lending rate by 1.5 percentage points to 7 percent at an
Russia's sovereign dollar bonds were also hit, down 2
points, while the cost of buying 5-year swaps to insure against
a Russian debt default jumped 33 basis points.
"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.
The escalating tensions sent Ukraine's hryvnia to a
record low against the dollar and pushed the country's dollar
bonds down 6 points on Monday, in contrast to a jump in
safe-haven German Bund futures, which rose 64 ticks.
No major regional bourse escaped the aggressive selling,
with all down more than 1 percent and Germany's DAX
particularly hard hit, tumbling 2.3 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 0.8 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 and the dollar hit a near one-month low against the yen
and approached Friday's two-year low against the Swiss
franc before pulling off their respective highs/lows.
"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 $1.3778
, 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 restrict 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.
"But... if it actually comes to war. U.S. crude could easily
surpass $110 and a $120 target is not out of the question," said
Ben Le Brun, market analyst at OptionsXpress.
Ukraine said, however, that it was pumping Russian gas as
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
was 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.
Elsewhere, the yield on 10-year U.S. debt slid 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 payrolls numbers on Friday and
manufacturing data later on Monday.
A private survey of the latter in China found factory
activity shrank again in February as output and new orders fell,
reinforcing concerns about a slowdown in the world's No. 2
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.