By Marc Jones
LONDON (Reuters) - Heightened tensions ahead of Ukraine's weekend referendum in Crimea and stresses over China's growth pushed world stocks to their lowest in a month on Friday and sent investors scurrying into safe-haven gold and bonds.
European shares (.FTEU3) started the day down 0.6 percent, putting most of the region on course for its biggest weekly drop since January while the DAX (.GDAXI), whose German constituents have the most exposure to Russia, was facing its largest weekly losses since the height of the euro crisis in June 2012. (.EU)
Hardest hit was Moscow's MICEX (.MCX) index. It was down more than 5 percent at its lowest since 2009 and there was no let up in the pressure on the ruble either as it hovered near an all-time low.
Russia launched new military exercises near its border with Ukraine on Thursday, even as both the U.S. and Europe warned that Moscow risked facing serious steps if annexation was the outcome of a referendum planned for Sunday in the Crimea.
"The Ukraine is one of the most serious geopolitical situations at the moment and how it plays out is difficult to forecast," Salman Ahmed, a global fixed-income strategist at the investment arm of Swiss private bank Lombard Odier, said.
"The main risk factor is that it morphs into an unintended clash and there is bloodshed."
On top of the geopolitical power struggle, jitters also remained over the degree to which China's economy is slowing.
Copper, seen as a proxy for China's fortunes, steadied after its dizzying 5-percent fall this week, but MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> touched its lowest level since mid-February. Tokyo (NIK:^9452) ended the week down more than 6 percent after 3.3 percent dive on Friday.
"Investors are unwinding their long positions in the Nikkei and short positions in the yen," Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas, said.
TAPER ON TRACK
One of the reasons for the Nikkei's decline was that the latest developments in the Ukraine crisis sent the safe-haven yen soaring against both the dollar and the euro.
The greenback was down about 0.2 percent at 101.64 yen, while the euro slipped a similar amount to 141.05 yen.
Part of the concern over the Crimea referendum is that is could encourage other pro-Moscow parts of the country to follow suit and potentially embolden Russia in the region.
U.S. Secretary of State John Kerry is set to meet Russian counterpart Sergei Lavrov later in the day in London in last-ditch diplomatic efforts to defuse tension between Moscow and the West.
"What we would like to see is a commitment to stop putting new facts on the ground and a commitment to engage seriously on ways to de-escalate the conflict," a U.S. State Department official said.
Solid U.S. retail sales and employment data on Thursday had also reinforced expectations that the U.S. Federal Reserve will stick to its plan of gradually withdrawing its asset-buying stimulus. That came after disappointing Chinese economic data.
The scuttle to safety pushed down German government bond yields after those on the benchmark 10-year U.S. Treasury note had fallen to two-week low 2.638 percent in Asian trading despite the upbeat U.S. data.
Gold, another safe-haven favourite, was nearly flat on the day at $1,369.06 an ounce after hitting a fresh six-month high, and was poised for its sixth straight weekly rise.
China's worries continued to weigh on the Australian dollar, considered a proxy for China plays, sending it down about 0.2 percent to $0.9009. Oil held above $107 a barrel but remained on track for its third straight weekly loss.
The euro also remained under pressure after comments from European Central Bank President Mario Draghi, who said the bank has been preparing additional policy steps to guard against deflation taking hold in the euro zone.
The single currency was down about 0.1 percent at $1.3860, moving away from Thursday's 2-1/2-year high of $1.3967 hit before Draghi spoke.
(Additional reporting by Ayai Tomisawa; Editing by Louise Ireland)