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 Kiev mobilized for war on Sunday after Russia declared its right to
invade its neighbor, with their forces already controlling
strategically important Crimea, an isolated Black Sea peninsula
where Moscow has a naval base.
The Group of Seven countries (G7) condemned Russia's move,
cancelling for now preparations for the G8 summit that includes
Russia and had been scheduled to take place in Sochi in June.
U.S. stock futures fell 1.0 percent from a record high hit on Friday
while Japan's Nikkei average tumbled 2.3 percent <.N225>. MSCI's
broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS>
fell 1.0 percent.
"It's a reaction to the escalation in tension in Ukraine over the
weekend ... the traditional risk proxies are getting hit, and the
safe havens are getting bid," said ANZ currency strategist Sam Tuck
in Auckland.
The dollar dropped to as low as 101.255 yen, its weakest in almost a
month, and last traded at 101.36 yen, about 0.4 percent below levels
late last week.
Against the Swiss franc, another traditional safe-haven currency,
the dollar slipped near Friday's two-year low of 0.8782 franc.
"No one wants a full confrontation between the NATO and Russia.
That's the worst scenario. Even Putin would probably not want it,"
said a senior proprietary trader at a Japanese bank.
"My hunch is that, in the end, the West will be resigned that Crimea
falls into the hands of Russia, given the historical background. But
it will take some time, at least a month, for the issue to be
quieted down. Until that will have happened, the markets will be
unstable," he added.
The euro also shed 0.2 percent against the dollar to $1.3778,
slipping from Friday's two-month high as the euro zone economy is
seen as vulnerable because of its dependence on gas supplies from
Russia via Ukraine.
Concerns about gas supply disruption as well as threats of war were
enough to boost oil prices sharply.
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Brent crude, the European oil benchmark, rose as much as two percent
to a two-month high of $111.24 per barrel.
The U.S. crude futures hit a five-month high of
$104.65.
On top of concerns about a military confrontation, it was not clear
Ukraine's new interim government, formed only about a week ago after
pro-Russian former President Viktor Yanukovich had been ousted, can
secure funds to avoid default.
Kiev has said it needs $35 billion over two years to avoid default,
and may need $4 billion immediately. But Ukrainian Finance Minister
Oleksander Shlapak said on Saturday the country is unlikely to
receive financial assistance from the International Monetary Fund
before April.
Concerns over Ukraine sent the 10-year U.S. debt yield falling to
one-month low of 2.592 percent, compared to 2.66 percent late last
week, ahead of release of important economic data this week,
including manufacturing data on Monday and payrolls data on Friday.
(Additional reporting by Naomi Tajitsu
in Wellington; editing by Eric Meijer)
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