* All major European stock markets down 2-3 pct
* Russia hikes interest rate after rouble slide
* Gold at 4-mth high; Yen gains 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
* U.S. markets set to follow suit
By Simon Jessop
LONDON, March 3 The rising threat of war between
Ukraine and Russia sent investors scurrying for relative safety
on Monday, pushing stocks down sharply - the Moscow market fell
11.5 percent - and lifting gold to a four-month high.
U.S. investors were set to add their weight to the move at
the open, with stock index futures all down
around 1 percent and benchmark U.S. Treasury yields
down 5.5 basis points.
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 and the threat of sanctions, spread through markets,
hitting Russian assets the hardest and forcing the Russian
central bank to aggressively raise interest rates.
Russia's stock market nosedived at the open and the
rouble fell 2 percent to record lows against the dollar
and the euro before recovering to trade up 1.4 percent after the
central bank dramatically lifted its key lending rate by 1.5
percentage points to 7 percent at an unscheduled meeting.
The country's sovereign dollar bonds were
also hit, down more than 2 points, while the cost of buying
5-year swaps to insure against a Russian debt default jumped 33
"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 87 ticks.
No major regional stock bourse escaped the aggressive
selling, with all down more than 2 percent and Germany's DAX
particularly hard hit, tumbling 3.1 percent and heading
for its biggest daily fall in eight months.
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.
"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.
Among those leading regional stock fallers were the many
companies, from banks to retailers, with heavy sales exposure to
Russia and Ukraine.
Chief beneficiaries of the market-wide flight from risk were
gold, German debt, 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 recovering to trade slightly higher.
The euro, meanwhile, shed 0.3 percent against the dollar to
$1.3763, 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
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 3 percent to a two-month high of $112.07 per barrel
, while U.S. crude futures hit a five-month high
"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 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, with the yield on 10-year U.S. debt off its
one-month low of 2.592 percent, focus will be on the
release of important economic data this week including payrolls
numbers on Friday and manufacturing data later on Monday after
mixed data from Asia and Europe.
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.
In Europe, meanwhile, data from the euro zone showed output
rose in all of the bloc's four biggest economies for the first
time in almost three years.