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Markets calmer over Ukraine, euro dips

Wednesday, March 05 14:49:52

A semblance of calm returned to world markets today after two days of intense volatility with the United States and Russia set to hold talks on easing East-West tension in Ukraine.

The West is stepping up efforts to persuade Moscow to pull its forces back in Crimea and avert the risk of a war. Russian President Vladimir Putin said on Tuesday that military force would only be used as a last resort.

European shares, which surged more than 2 percent on Tuesday to spur a global rebound, traded almost sideways as currency and bond markets also stabilised.

Russian stocks and the rouble fought off early weakness as investors decided Moscow was dialling down the intensity of its rhetoric over Ukraine, though Wall Street futures trimmed gains as soft ADP jobs data dampened expectations for Friday's non-farm payrolls figures.

In Russia, President Vladimir Putin said he did not want political tension to detract from economic cooperation with its "traditional partners".

"Things are indeed calming down in Ukraine," said Steen Groendahl, head of global research at Nordea in Helsinki.

"Quite honestly markets have taken this in their stride. There was a knee jerk reaction on Monday but since then it has sort of been smooth sailing."

The relative calm in Crimea allowed attention in Europe to drift back towards Thursday's meeting of the European Central Bank.

The euro tip-toed lower to $1.3726 having dipped overnight. Benchmark Bunds lost ground as the German bond market's general safe-haven appeal waned.

ECB policymakers remain under pressure to either cut interest rates again or use additional unconventional measures to fend off the threat of ultra-low inflation turning into something more damaging.

Analysts at Citi said in a note that their base-case expectation was that the bank would cut rates by 15 basis points to 0.10 percent, but many others think it will hold fire for now.

Revised PMI data on Wednesday showed euro zone firms enjoyed their fastest growth rate in over 2-1/2 years last month though the gulf between growth in Germany and the decline in France continued to temper the mood.

"Regional divergences remain a concern," said Chris Williamson, chief economist at survey compiler Markit. (Reuters)