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 The new U.S. sanctions announced late on Wednesday effectively shut
off longer-term dollar funding for companies close to President
Vladimir Putin. The EU also expanded its punishments for certain
firms and said it would ask two of its development banks to halt
lending in Russia.
Moscow's MICEX stock market dropped 2.7 percent in morning deals,
its dollar-traded cousin, the RTS index, fell 4.4 percent and the
ruble dropped more than 1 percent against both the dollar and the
euro.
"From the West's perspective they could not have chosen a better
time to intensify sanctions," said Societe Generale strategist Regis
Chatellier. "Until a few weeks back Russia was in a position of
relative strength because there was massive pressure on oil, but
that is not the case any more."
Safe-haven assets were given a broad lift, with concerns now that
Moscow - which provides much of Europe's gas - could hit back with
retaliatory measures.
The Japanese yen, Swiss franc, gold and German government bonds were
all higher as the selling of riskier assets accelerated.
The pan-European FTSEurofirst 300 extended early falls to be down
0.5 percent by 1030 GMT as some mixed earnings and Wednesday's gains
- the biggest in three months - also bred caution among investors.
SAFETY FIRST
Asian equities had dipped overnight too, led by Chinese shares. That
came despite a fresh record high for Wall Street's Dow Jones
Industrial index.
Mid-year earnings are now in full swing. Later in the day internet
giant Google reports its results, topping a heavy slate of big
hitters which also includes Morgan Stanley.
"U.S. earnings have been pretty good so far," said IG Index
strategist Alastair McCaig. "It's early doors, but at the moment the
ratio is seven-to-one beating expectations."
In the currency market, the Russia tensions helped the safe-haven
yen inch up to 101.50 yen to the dollar. It also hit a five-month
high against the euro as the recent downward trend in the euro
zone's shared currency continued.
"There seems to be a bit more of a safe-haven bid for the yen here
because of what is going on with Russia," said Jane Foley, a foreign
exchange strategist at Rabobank in London.
"Remember earlier in the week we also had (Federal Reserve chief)
Janet Yellen warning about some stocks being a bit overvalued... so
there is anxiety not too far below the surface about some asset
prices."
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Data suggesting a shaky start for Germany in the new quarter and
wariness about banking problems in Portugal have hobbled the euro
this week. Newly revised euro zone June inflation data also
bolstered the case for record-low ECB interest rates.
Inflation remained at 0.5 percent, year-on-year figures on Thursday
showed, deep in what ECB chief Mario Draghi has termed the sub-1
percent "danger zone."
By contrast, Britain is expected to raise rates later this year.
Consequently, the euro hovered near the 78.88 pence it touched on
Wednesday, a low not seen since September 2012.
OIL, GOLD CLIMB
Although the Russia/West tensions were rumbling in the background,
commodities markets appeared less directly impacted by the concerns.
U.S. crude oil extended gains after rising more than $1 the previous
day, after government data showed U.S. stockpiles dropped last week.
U.S. crude was up 0.25 percent at $101.45 a barrel with Brent
fetching 107.66.
Aluminum held steady after touching a 16-month high in light of
upbeat data from top consumer China, while Shanghai copper fell to
its lowest in a fortnight on worries about a possible bond default
in China's construction sector.
Gold ticked higher to trade above $1,302 an ounce, though it
remained near a four-week low as investors weighed the possibility
U.S. interest rates would rise sooner than expected.
Gold has been under pressure since tensions in Iraq have calmed, and
Yellen said on Tuesday the U.S. central bank could raise rates
earlier or faster if hiring and wages take off in an unexpected way.
(Additional reporting by Sujata Rao in London; Editing by Mark
Trevelyan)
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