* European shares fall over Ukraine but head for weekly gain
* Dollar index slips even as yen drifts off session highs
* Bunds gain as investors head for safety
* U.S. stocks expected to open lower, earnings eyed
By Marc Jones
LONDON, April 25 Heightened tension in Ukraine
pushed world shares lower and lifted safe-haven European bonds
as well as gold on Friday, taking the shine off what looked set
to be an earnings and M&A-driven week of gains for European and
Russia warned on Friday that Kiev would face "justice" for
Thursday's killing of up to five pro-Russian separatists, while
Kiev said Moscow was looking to start World War Three.
European shares tumbled 0.6 percent as concerns
mounted that the United States and Europe were readying tougher
sanctions on Russia that were bound to be met with retaliatory
measures from Moscow.
The DAX in Germany, which has the region's
strongest trade ties with Russia, fell 1.4 percent.
But German government bonds, favoured by
risk-wary investors, gained in tandem with their U.S
counterparts and gold.
"The (Ukraine) prime minister has been making comments about
Russia wanting to start World War Three, so I think it's fair to
say people aren't going to be in a rush today to sell
safe-havens," said Saxo Capital Markets senior market analyst
London's FTSE and Paris's CAC40 dropped 0.4
and 0.6 percent as they limped towards weekly gains of about 0.5
Russian shares were staring at a weekly loss
of almost 6 percent while the rouble and Russian bonds
took another beating after a ratings downgrade by Standard &
Russia's central bank unexpectedly raised interest rates on
Friday as it reacted to the slump in the rouble which is driving
up import prices and inflation.
"The conflict and the threat of sanctions by definition
increase risks for financing. It risks turning into a negative
dynamic," said Societe Generale analyst Regis Chatellier.
Asian stocks had also stumbled earlier and markets on Wall
Street were expected to open 0.2-0.4 lower when trading resumes
on another busy day of company earnings headlined by car giant
Ford and consumer goods firm Colgate-Palmolive.
U.S. Secretary of State John Kerry has said time is running
out for Moscow to change its course in Ukraine. President Barack
Obama will speak to European leaders later to push for fresh
sanctions against Russia.
Germany's Angela Merkel told Russia's Vladimir Putin in a
call on Friday she was gravely concerned about the situation in
eastern Ukraine and expected Russia to honour the agreement it
struck in Geneva last week to cool the situation.
The Ukraine concerns lifted gold back above $1,300 an
ounce after it had touched its lowest levels since February on
Thursday as Brent oil prices held close to seven-week
highs at $110 a barrel.
Another gloomy day for Chinese equities had
further darkened the mood in Asia as concerns about the state of
China's economy and its banking sector continued. The country's
currency the yuan also hit a fresh 16-month low.
The safe-haven yen and Swiss franc rose to
near one-week highs against a struggling dollar on Friday
as deepening concerns about Ukraine outweighed growing optimism
about U.S. economic growth.
The dollar last stood at 102.19 yen, not far from
Thursday's one-week low of 102.085, at the end of a lacklustre
week against the safe-haven yen during which it has lost about
"Geopolitical risks are not having too much of an impact on
currencies with most investors still focused on growth
prospects," Credit Agricole FX strategist Manuel Oliveri said.
The euro held steady at $1.3836, having recovered
from Thursday's low of $1.3791, hit after European Central Bank
President Mario Draghi reiterated the potential for asset
purchases to ward off deflation risks. The pound was also
little changed despite upbeat retail sales data.
Copper dipped after hitting $6,775 a tonne, its
highest in over a month, while there appeared to be no stopping
nickel as the impact of Indonesia's recent trade ban
lifted it to its highest in 14 months.
(Additional reporting by Anirban Nag in London; Editing by Hugh