* European stocks fall, Russian stock take another heavy hit
* Oil extends gains, on track for weekly rise
* U.S. Treasuries, Bunds steady, yen, gold dip after rally
* Wall Street expect to open flat, GE earnings in focus
By Marc Jones
LONDON, July 18 World markets remained under
pressure on Friday after a Malaysian airliner was downed near
the Ukraine-Russia border and Israel stepped up a ground assault
against Gaza militants.
As investors scurried into defensive assets, European shares
saw more selling after falling heavily on Thursday.
Demand for safe-haven German government bonds kept their yields
near record lows.
World leaders demanded an international investigation into
the downing of the Malaysian plane with 298 people on board over
eastern Ukraine. Kiev and Moscow blamed each other for a tragedy
that stoked tensions between Russia and the West.
Russia markets took the heaviest hit. Dollar-traded stocks
in Moscow were down another 2.3 percent to put their
losses for the week at more than 8 percent. The rouble
recovered almost half a percent on the day but was heading for
its biggest weekly loss in more than a year.
"While Ukraine, Russia and the rebels deny any involvement
or responsibility, tensions will most likely continue into the
weekend," Michael Rottmann, head of fixed income strategy at
"Furthermore, Israel sending ground troops into the Gaza
Strip adds to geopolitical concerns. While at current levels
both Bunds and U.S. Treasury valuations look extremely rich, it
is clearly not the time to position in the opposite direction."
There were some signs that markets were trying to steady.
Some analysts wondered whether the Malaysian jet tragedy could
bring the two sides in Ukraine to the negotiating table and take
the heat out of the crisis.
The United States called for an immediate ceasefire to allow
easy access to the crash sitel. Pro-Russian separatists told the
Organisation for Security and Cooperation in Europe (OSCE), a
security and rights body, they would ensure safe access for
international experts visiting the scene.
Gold dipped as buyers cashed in on some of its 1.5
percent overnight jump. The Japanese yen and U.S.
government bonds - the safe haven investors usually
head for - both gave up some ground.
European shares took back some of their initial falls.
International Consolidated Airlines, owner of British
Airways and Iberia, rose, although the region's other two
big names, Air France and Lufthansa, fell.
U.S. futures were also flat, suggesting some measure
of stability might return to U.S. markets.
It was set to be another hectic day of company earnings.
Analysts were already digesting some pre-market releases from
global manufacturing giants General Electric's and
Honeywell plus Bank of New York Mellon.
The situation in Ukraine and the rising tensions between the
West and Russia were not the only concern weighing on sentiment.
Israel announced the start of a Gaza ground campaign on
Thursday after 10 days of aerial and naval bombardments failed
to stop Palestinian rocket attacks.
Asian markets had a turbulent day. Most emerging Asian
currencies fell and Japan's Nikkei stock average
tumbled 1 percent to keep MSCI's 45-country All World
index on course for a second week of falls.
"The general theme in the market, the predominant theme
today, seems to be risk aversion. So we do expect dollar/Asia to
head higher in the near term," said Divya Devesh, currency
strategist for Standard Chartered in Singapore.
"Whether this move will be sustained is still quite
uncertain. It will depend on how the geopolitical risks unfold."
In contrast to the broader downward global trend, European
shares looked set to end the week up 0.5 percent. One reason is
expectations the ECB will keep euro zone interest rates near
zero for considerably longer than the Federal Reserve or Bank of
The head of the International Monetary Fund, Christine
Lagarde, warned on Friday, however, that markets were "perhaps
too upbeat" about the region. Germany Bundesbank chief, Jens
Weidmann, also stirred thoughts as cited a litany of long-term
dangers of continually providing easy money.
"There is a danger that the low interest rates will be used
not to consolidate (government) budgets, but to finance
additional spending," the German said as one of his concerns.
The dollar edged up about 0.2 percent to 101.34 yen,
regaining some of its overnight loss of nearly 0.5 percent, its
biggest one-day loss since early April.
The euro, which has lost roughly 0.9 percent against the yen
this week, traded at 137.05 yen after reaching a five-month low
and hovered near a one-month low versus the dollar at $1.3524
In commodities trading, U.S. crude oil gained about
0.2 percent to $103.41 a barrel after jumping by more than $2 on
Thursday. Brent was fetching 108.25, up 1.5 percent on
the week. Russia pumps more than a tenth of the world's crude.
(Editing by Larry King)