NEW YORK Global equity markets fell on Thursday and safe-haven U.S. and German government bonds rose on fears over escalation of the crisis between Russia and Ukraine and in response to underwhelming U.S. and European economic data.
Slovak Prime Minister Robert Fico said Russia's Vladimir Putin told multiple European states that Moscow will not supply gas to Europe as of June 1 if Ukraine does not pay its bills. Moscow and Kiev have taken tentative steps to resolve this dispute.
Natural gas futures rose 1.7 percent.
U.S. stocks fell as much as 1.4 percent on continued weakness in small-caps. The Russell 2000 small-cap index .TOY suffered a third straight decline for a total fall of 3.3 percent.
"I think (stocks) are starting to form a little bit of a ceiling. Over the next four months it's going to work a lot lower," said Uri Landesman, president at Platinum Partners in New York.
European stocks .FTEU3 closed down 0.8 percent after rising to a six-year peak after data showed the euro zone economy expanded slightly in the first three months of 2014 from the last quarter of 2013, boosting expectations of stimulus from the European Central Bank.
The MSCI world equity index .MIWD00000PUS fell 0.71 percent while bond prices in Spain, Italy and other peripheral European nations fell sharply.
Yields on benchmark 10-year U.S. Treasury notes fell as low as 2.47 percent, the lowest since October 30. The U.S. bond market rallied in tandem with Europe's, bolstered by weak euro zone growth that further cemented expectations the ECB will lower rates in June. <US/>
The Putin news along with weak U.S. industrial production data and a fall in U.S. homebuilder sentiment stoked the safe-haven rally.
Also adding to investor skittishness were comments from billionaire hedge fund manager David Tepper who said he was "nervous" about the stock market at a conference on Wednesday but said this was not the time to sell.
The Dow Jones industrial average .DJI fell 167.16 points or 1.01 percent, to 16,446.81, the S&P 500 .SPX lost 17.68 points or 0.94 percent, to 1,870.85 and the Nasdaq Composite .IXIC dropped 31.33 points or 0.76 percent, to 4,069.29.
U.S. crude oil settled down 87 cents at $101.50 a barrel, while Brent crude gained 25 cents to $110.44.
ECB President Mario Draghi signaled last week the bank was poised to ease policy next month to support the euro zone economy. Federal Reserve Chair Janet Yellen has also suggested continued support for the U.S. economy.
The euro edged lower, down 0.04 percent at $1.3709 after hitting a low of $1.3647, while Germany's 10-year Bund yield hit its lowest in a year at 1.30 percent.
(Additional reporting by Caroline Valetkevitch; Editing by Dan Grebler and James Dalgleish)