LONDON (Reuters) - There was no let-up for bruised share markets on Monday as growing fears of a military conflict in Ukraine followed last week's heavy sell-off on Wall Street, Tokyo and major European exchanges.
Ukraine's president threatened military action after pro-Russian separatists occupying government buildings in the east ignored an ultimatum to leave and another group of rebels attacked a police headquarters in the region.
For financial markets that meant yet more uncertainty. Asian markets had conceded more ground overnight, and Europe followed suit with the pan-regional FTSEurofirst 300 down 0.4 percent as U.S. trading approached.
A flurry of M&A activity, including a $6 billion copper mine sale from Glencore Xstrata, helped cushion the falls, which were driven by a 0.6 percent decline in the Dax. German-listed firms have some of the biggest links to Russia.
"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."
Russian markets also tumbled. The rouble and Moscow's main stock market were down around 0.7 and 1.5 percent, while the country's key bonds stayed under pressure as the cost of insurance against default increased.
European Union foreign ministers will hold talks later on Monday about tougher sanctions against Russia. The worry for many is that the two sides end up imposing increasingly tough measures that will inevitably harm both.
S&P 500 e-mini futures pointed to another subdued start for Wall Street later. Last week's turbulence buffeted global markets and saw the tech and biostock-dominated Nasdaq take its biggest tumble since 2012.
The falls have centered on concerns that some stocks may have risen too far too fast over the last year.
Earnings season will shift up a gear this week. Ahead of the open, JPMorgan Chase reported a 19 percent drop in Q1 profits [ID:nL2N0N318F]. Both it and Wells Fargo kick off a host of big-name banks releasing figures this week.
In the currency market, the low-yielding yen benefited from the heightened risk aversion. The dollar nudged up to 101.72 yen after touching a 3-1/2-week low of 101.32 yen on Friday, but that was far from the 2-1/2-month high of 104.13 yen set on April 4.
More promises from the European Central Bank over the weekend that it will take action to head off further gains in the euro also tugged the shared-currency back to $1.3825 from Friday's high of $1.3905.
"The strengthening of the exchange rate would require further monetary policy accommodation," ECB head Mario Draghi said at a meeting of the International Monetary Fund.
Benoit Coeure, another top ECB member, also laid out some asset-buying options, a tactic which appears to be finally gaining traction at the central bank.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had shed 0.5 percent, pulling further away from five-month highs hit on Thursday.
Japan's Nikkei stock average ended down 0.4 percent at a fresh six-month closing low. It plunged 7.3 percent last week, its biggest weekly fall since the devastating earthquake and tsunami in March 2011.
"Some are worried that a U.S. bubble in the equities markets might be corrected, because of the ongoing tapering" of monetary stimulus by the U.S. Federal Reserve, said Kyoya Okazawa, head of global equities at BNP Paribas in Tokyo.
Among commodities, spot gold benefited from the move towards safe-haven assets, adding about 0.4 percent to $1,323 an ounce, after earlier marking a new three-week high.
U.S. crude for May delivery steadied at $103.78 per barrel and Brent crude eased back after it had risen above $108.20, bolstered by fears that the Ukraine situation could escalate. Ukraine is a major supply route for Russian gas to Europe.
In Europe, government bonds were the big beneficiaries of the geopolitical uncertainty, also responding to Draghi's comments. Bund yields dipped to a 10-month low, while most periphery euro zone bonds also made ground.
"It's a pretty bullish day for core (bonds)," said Lyn Graham-Taylor, rate strategist at Rabobank. "The overall message was that the ECB doesn't know what QE (quantitative easing) would look like, but they see it as a viable policy option."
Additional reporting by Marius Zaharia in London and Megan Davies in Moscow; Editing by John Stonestreet