(Adds comments, updates prices)
* NATO says Russian troops massing on Ukraine border
* Euro stocks tumble, Wall Street set to open lower
* German industrial orders slide, sanctions bite
* Investors seek refuge in German bonds, yields hit new lows
* Euro falls to nine-month low versus dollar
By John Geddie
LONDON, Aug 6 European stocks fell on Wednesday
while nervous investors took refuge in high-rated bonds as
Russia amassed troops on its border with Ukraine, raising
concerns among western powers that it could invade.
The euro came under pressure, trading at nine-month low
against the dollar amid threats of retaliatory Russian sanctions
against the European Union, and signs the crisis in Ukraine was
hitting Europe's biggest economy Germany.
German industrial orders slid in June at their steepest rate
since September 2011, and the economy ministry said political
tensions had probably led to more caution from customers.
"We are getting closer to a situation where we really have
an escalation of the conflict...sanctions being stepped up, and
things moving out of control," said Elwin de Groot, senior
market economist at Rabobank.
European stocks fell 1.3 percent - the biggest
one-day fall in nearly a month - while MSCI's world equity index
was down 0.5 percent. Dollar-traded Russian
stocks hit a three-month low.
U.S. futures indicated that Wall Street would open down
roughly 0.3 percent.
German 10-year bond yields fell 7 basis points to a record
low of 1.10 percent, on track for their biggest daily drop in
nearly a year.
Yields on lower-rated peripheral bonds rose, extending
losses after data showed the bloc's third largest economy Italy
had unexpectedly slipped back into recession.
"From a medium-term perspective, the data we got from Italy
this morning is much more worrying than Russia... It could be a
big problem for the European Central Bank if we don't get a
sharp rebound any time soon," said Frederik Ducrozet, senior
economist at Credit Agricole, said.
The ECB, which is due to meet on Thursday, has made
unprecedented policy moves in recent months to try to keep the
bloc's fragile recovery on track.
Portuguese bonds were the worst hit on Wednesday, rising 7
bps to 3.79 percent. The country's main bourse shed 3.8 percent
to hit its lowest level in over a year, with financial stocks
suffering over concerns about fallout from a rescue plan for
ailing Banco Espirito Santo.
Russia has built up around 20,000 combat-ready troops on
Ukraine's eastern border and could use the pretext of a
humanitarian or peacekeeping mission to invade, NATO said on
The European Union and the United States last week agreed
tough new sanctions against Russia over its actions in Ukraine,
marking a new phase in the biggest confrontation between Moscow
and the West since the Cold War.
Russian Prime Minister Dmitry Medvedev threatened on Tuesday
to retaliate for the grounding of a subsidiary of national
airline Aeroflot because of EU sanctions, with a newspaper
reporting that European flights to Asia over Siberia could be
"The latest catalyst seems to be this sabre-rattling at the
border, and the market just has no upward momentum. This talk of
tit-for-tat sanctions is also adding to the risk-off tone,"
Jeremy Batstone-Carr, analyst at Charles Stanley, said.
Risk aversion and upbeat U.S. economic data, which included
a rise in service-sector activity to a nine-year peak and a
uptick in factory orders, helped lift the dollar to an 11-month
high against a basket of major currencies.
The dollar index rose as high as 81.681, its highest level
since last September.
China's yuan hit a 4-1/2-month high on Wednesday, as other
emerging Asian currencies slid, indicating that traders may be
preparing the ground for robust second half gains.
The New Zealand dollar skidded to two-month lows after milk
prices fell again at an auction held by Fonterra Co-operative
Group, the world's biggest dairy exporter.
Oil prices remained under pressure as plentiful supplies in
Europe and North America outweighed fears that violence in the
Middle East and North Africa could disrupt production.
Brent crude edged up 43 cents on Wednesday to
$105.04, but that followed its weakest close since November
2013. U.S. crude was 35 cents firmer at $97.73, following
its lowest settlement since early February.
Gold failed to get much of a lift from safe-haven flows and
idled at $1,289.66 an ounce.
(Editing by John Stonestreet)