(Adds comment and context, updates prices)
MOSCOW, April 14 Russian stocks and the rouble
fell sharply on Monday as Ukraine prepared to fight pro-Russian
rebels, heightening fears of Russian military intervention and
more western sanctions against Moscow.
At 0800 GMT the rouble-denominated MICEX index was
down 1.6 percent to 1,340 points and the dollar-denominated RTS
index fell 2.6 percent to 1,173 points.
"The escalation sharply increases risks of an all-out civil
war in Ukraine," said Bank of America Merrill Lynch analysts in
a research note. "Even though it is still not our baseline
scenario, the entire development is clearly negative for the
market (and raises) renewed fears of another wave of sanctions
from the West."
Kiev has said that it will use force against armed militants
in eastern Ukraine who seized control of several government
buildings and ignored a deadline to disarm.
Western governments have blamed Russia for stoking the
unrest and warned of additional sanctions if it intervenes
militarily or continues to destabilise Ukraine.
Despite the deteriorating situation, some analysts doubted
that Russia would send troops to support the pro-Russian rebels.
"The invasion of Russian forces into the eastern regions of
Ukraine is unlikely, because political isolation and an economic
slump isn't part of the Kremlin's plans," said BCS analyst Mark
Bradford in a morning note.
A U.S. source told Reuters that broad sanctions against
sectors of the Russian economy are probably not on the immediate
The U.S. has previously warned that it may introduce
sanctions against whole economic sectors including energy,
mining and banking.
Investors are also eyeing four-way negotiations between
Russia, Ukraine, the EU and U.S. on solutions to the crisis in
Geneva on Thursday.
"If that planned meeting is cancelled this would be taken as
a very negative signal by investors and we would see a further
step down in equities, the rouble, and in debt markets," said
Macro-Advisory consultant Chris Weafer in a report.
Weafer said that investors also need to closely follow
negotiations to resolve a dispute over Ukraine's gas debts to
Russia and the price it pays for Russian gas.
"A clear agreement on the gas issues or positive signals
from the four-way talks ...may encourage more investors to take
advantage of cheap valuations (of Russian assets)," he wrote.
The rouble was 1 percent weaker at 36 against the dollar
and 0.8 percent weaker at 49.87 against the euro.
, its lowest levels for three weeks. It fell 0.9
percent to 42.24 against the dollar-euro basket.
(Reporting by Megan Davies and Jason Bush, additional reporting
by Vladimir Abramov; Editing by John Stonestreet)