* Report of fresh Ukraine tensions sparks market reversals
* Stocks retreat in Europe, Wall Street
* Bund yields plumb record lows below 1 pct
* Dollar strengthens versus euro (Adds oil settlement prices)
By Herbert Lash
NEW YORK, Aug 15 (Reuters) - Global equity markets retreated on Friday on news Ukrainian forces had engaged a Russian armored column in Ukraine, while yields on benchmark German bunds plumbed record lows below 1 percent on fears of a major escalation of military tensions.
The government in Kiev said its artillery partially destroyed the Russian column in fighting overnight, but Russia denied its forces had crossed into Ukraine, calling the Ukrainian report “some kind of fantasy.”
Investors have worried about a deepening stand-off between Ukraine and Russia, though recent signs of easing tensions had lifted equity markets, especially in Europe.
MSCI’s gauge of global equity performance pared losses in late trading to just below break-even, but bond prices still reflected the move into traditional safe-havens.
Ten-year Bund yields dropped 5.6 basis points to a record low of 0.958 percent in their biggest weekly percentage fall in almost 11 months. The 10-year U.S. Treasury rose 14/32 in price, pushing its yield down to 2.3485 percent, and 10-year UK bond yields fell to 2.328 percent at the close, the lowest since August 2013.
“The falling yield levels are a reaction to panic,” said Chris Orndorff, a portfolio manager at Western Asset in Pasadena, California. “U.S. Treasuries continue to play the role that they have always played, the favorite asset in a flight-to-quality environment,” he said.
MSCI’s all-country world equity index fell 0.06 percent, while the FTSEurofirst 300 index of leading European shares fell 0.45 percent to close at 1,323.10, after trading 0.8 percent higher earlier in the session.
Most U.S. stock indexes also pared losses to trade slightly lower, but the tech-heavy Nasdaq was in positive territory.
The Dow Jones industrial average fell 58.86 points, or 0.35 percent, to 16,654.72. The S&P 500 lost 2.18 points, or 0.11 percent, to 1,953 and the Nasdaq Composite added 6.679 points, or 0.15 percent, to 4,459.68.
The safe-haven yen and Swiss franc advanced after news of the Ukraine event. The Swiss franc hit a 19-month high against the euro and a three-week peak versus the dollar. The yen reversed losses against the dollar, turning higher.
The dollar was down 0.1 percent against the yen at 102.33 yen, after hitting its highest in more than a week. The dollar last traded at 0.9027 franc, down 0.4 percent.
The euro, meanwhile, tumbled versus the Swiss franc to its lowest since January 2013. It was last at 1.2092, down 0.2 percent.
Crude oil prices rose on the Ukraine news, after Brent had stabilized close to a 13-month low on ample supplies of high-quality oil and signs that faltering global economic growth may cap fuel demand.
October Brent crude rose $1.46 to settle at $103.53 a barrel, while U.S. crude rose $1.77 to settle at $97.35 a barrel. (Reporting by Herbert Lash; Additional reporting by Nigel Stephenson in London; Editing by Dan Grebler and Chizu Nomiyama)