* Indexes pare afternoon losses
* Russia denies report Ukraine engaged Russia armored column
* VIX jumps on Russia, Ukraine concerns
* Indexes: Dow down 0.3 percent, S&P flat, Nasdaq up 0.2 percent (Updates to afternoon trading)
By Akane Otani
NEW YORK, Aug 15 U.S. stocks fell on Friday after tensions flared in Ukraine, prompting investors to recoil from risk, but major indexes cut their losses in late trading and were on track for another week of gains.
The tech-heavy Nasdaq turned positive in the afternoon, lifted by gains in stocks like Microsoft and Applied Materials.
Markets had opened higher on hopes of easing tensions between Russia and Ukraine, but shed those gains following the statement from Ukraine, which added later that its forces had come under shellfire from Russia.
Russia's Defense Ministry denied its forces had crossed into Ukraine.
The CBOE Volatility Index, a measure of investor anxiety, rose 9.1 percent to 13.55, in heavy volume. Investors rushed to safe-haven bonds and the 10-year Treasury note yield dropped to near 2.32 percent, its lowest level since June 2013.
With earnings season winding down, the market has been sensitive to developments between Russia and Ukraine. Despite the day's losses, stock indexes remained on track for their second straight week of gains, and the S&P 500 remained less than 2 percent away from a record close in July.
"While we've had a lot of negativity hit the market lately, I don't think it has really sunk in for the long-term yet," said Adam Hewison, president and chief executive at INO.com in Annapolis, Maryland.
"It's like the never-ending story with Russia and Ukraine - you don't know what to believe, but the reality is that it's an ongoing problem and that it's a question of when investors decide to say, 'Enough is enough, I'm going to cash in.'"
The Dow Jones industrial average fell 45.04 points, or 0.27 percent, to 16,668.54. The S&P 500 was down 0.35 points, or 0.02 percent, to 1,954.83. The Nasdaq Composite added 10.36 points, or 0.23 percent, to 4,463.36.
U.S. manufacturing output rose broadly in July and automobile production recorded its largest increase in five years, but other data showed some cooling in factory activity. U.S. consumer sentiment fell in August.
Monster Beverage Corp jumped 29.7 percent to $92.93 as the S&P's biggest gainer after Coca-Cola Co said it was buying a 16.7 percent stake in the company for $2.15 billion. Shares of Coca-Cola rose 1.7 percent to $40.87.
The Nasdaq was also lifted by Applied Materials Inc , up 5.5 percent to $22.31, a day after quarterly earnings beat expectations.
On the downside, GameStop Corp shares fell 5.4 percent to $39.57. The stock was the biggest loser in the S&P 500. (Editing by Bernadette Baum, James Dalgleish and Nick Zieminski)