Markets Tumble As Ukraine Tensions Escalate
Russia's central bank has acted to shore up its currency as world stock markets fall over escalating tensions in Ukraine.
Investors are worried by the diplomatic stand-off between the West and Russia over President Vladimir Putin's decision to effectively occupy Ukraine's Crimea region following the change in leadership in Kiev.
The US threatened possible asset freezes and trade penalties as a response to Russia's military intervention.
The resulting flight from risk on the markets first saw stocks fall and gold rise in Asia, where the Nikkei in Japan lost 1.3%.
Russia's MICEX stock exchange later lost up to 10% of its value when it opened for business - later extending those losses to 12.5% by mid-afternoon - while Russia's central bank reacted to a plunge in the value of the ruble by raising its core interest rate to 7% from 5.5%.
The central bank did not mention Ukraine in its statement, but said the decision was aimed at preventing "risks to inflation and financial stability associated with the recently increased level of volatility in the financial markets".
The ruble, which was already down nearly 10% this year, had fallen below 50 to the euro for the first time.
It began trading below 36.4 to the dollar, also a record.
Dealers estimated Russia's central bank also sold up to $10bn of its gold and foreign exchange reserves, to help stem the ruble's fall.
Shares in Russian state-owned Gazprom were down more than 10% amid reports it will have to end discounted gas deals with Ukraine as tensions intensify over the debt-laden country's future.
European stock markets responded to the uncertainty in the region by falling more than 2% in some cases in early trading.
In London, the FTSE 100 lost 1.6% in the first few minutes of trading, with only two companies seeing any gains.
Germany's DAX was 3% lower in mid-afternoon as investors mulled close business links with Russia.
Oil major BP, which has a significant stake in Russia's biggest oil producer Rosneft, fell more than 1% on concerns of an escalation in tensions.
Separately, Rosneft shares slumped more than 8% in Russia.
Commodities were also volatile, with Brent Crude oil rising 2% and a combination of the crisis in Ukraine and poor weather combining to push wheat costs up almost 5%.
Gold was another asset to see gains as investors looked to move their money towards the traditional safe haven.
The market instability played out as efforts to help shore up Ukraine's finances gained momentum.
It was confirmed an International Monetary Fund (IMF) mission will start work in Kiev on Tuesday as the country seeks $35bn (£21bn) in financial assistance to avoid bankruptcy.
The uncertainty was felt across most markets because of the implications of a potential tit-for-tat trade battle - likely to be the first step of the international response to Russia's intervention.
While Russia's biggest export is the supply of oil and gas, it imports the vast majority of its goods and experts said the combination of higher interest rates and a weak ruble would push up inflation - making life tougher for Russian consumers.
Daniel McCormack, strategist with Macquarie, said of the reaction by investors: "Clearly the market is in a risk-off mode on the back of the geopolitical developments, the most concerning for Europe since the end of the cold war.
"All eyes will be on whether it spreads but I doubt that there will be a major sell-off as a result of this.
"It appears that the West is not going to intervene militarily, so this escalating into a full-blown war is very unlikely. The market is also supported by macroeconomic factors and central banks."
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