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 The 28-nation European Union reached an outline agreement on Friday
on its first economic sanctions on Russia. Its increasingly tough
stance was underscored by German finance minister Wolfgang Schaeuble,
who said the "top priority" was peace rather than economic
interests.
Russia warned the moves would hamper cooperation between the two and
undermine the fight against terrorism, although Foreign Minister
Sergei Lavrov said on Monday that Moscow would not impose
tit-for-tat measures.
Europe's main bourses were flat in subdued trade as strong earnings
updates and relief over Russia's response, and that the EU measures
had steered away from Russia's gas industry, balanced concerns about
the impact of the sanctions.
There was more acute pain for Moscow stocks, however, with their
woes compounded by an international court ruling that Russia must
pay shareholders in defunct oil producer Yukos $50 billion for
expropriating assets. That would be a big hit for a country
teetering on the brink of recession.
Moscow's dollar-denominated RTS index slumped 2.5 percent in
response, its rouble-traded peer MICEX fell 1.8 percent and the
rouble dropped over half a percent against both the dollar and the
euro.
"What we have today I think is largely because we have seen Germany
stepping up rhetoric on tougher sanctions on Russia," said Vasileios
Gkionakis, Global Head of FX Strategy for UniCredit in London.
"Saying stability and peace is the top priority rather than economic
interests are strong words. The rouble is definitely not a currency
that I like."
European shares' nerves over Ukraine and Russia were partially
offset by a small number of positive company updates and after the
latest rise in Chinese stocks had helped Asian markets hit a new
three year-high.
Nevertheless, the FTSEurofirst 300 index of top European shares
struggled, trading flat at 1,371.40 points, after losing 0.7 percent
on Friday. Wall Street was also expected to start little changed
ahead of a flurry of PMI and manufacturing data.
FED FOCUS
At least three civilians were killed in overnight fighting in
eastern Ukraine, after fierce skirmishes over the weekend had
prevented international monitors reaching the crash site of the
downed Malaysian Airlines plane that killed almost 300 people.
As Russian debt slid, benchmark bonds of Germany and Austria, two of
the countries with the closest economic ties to Russia - also saw
minor selling though the ECB's pledge of record low interest rates
limited the moves.
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Despite the geopolitical uncertainty, there was little shift among
the major currencies as attention remained firmly on the global
recovery and when big economies like the United States are likely to
start raising interest rates again.
The dollar was hovering at a six-month high against a basket of
currencies while the combination of the tensions with Russia and the
greenback's current strength kept the euro pinned near an
eight-month low at $1.3435.
Analysts and traders are ready for a busy week of U.S.-focused
action including a Federal Reserve meeting and GDP data on Wednesday
and non-farm payrolls figures on Friday.
"We think the euro-dollar move may pause for breath at the start of
this week before another shift lower at the end of the week," said
Adam Myers, head of European currency strategy at Credit Agricole in
London.
"The market is clearly short on the euro but there doesn't quite
seem to be the fuel over the next day or two to drive it much lower
and that may squeeze some of those positions."
In commodities, Brent crude slipped below $108 a barrel as fighting
between Israel and Hamas Islamist militants subsided in Gaza,
although the tense situations there as well as in Libya, eastern
Ukraine and Iraq all limited the fall.
Brent shed 86 cents to $107.46 a barrel after a 1 percent gain last
week.
Gold also slipped under pressure from the stronger dollar but was
supported near $1,300 an ounce by its safe-haven appeal.
(Additional reporting by Vladimir Soldatkin in Moscow and Patrick
Graham in London; Editing by Catherine Evans)
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