London - The United States imposed its toughest sanctions yet on Moscow on Wednesday, and Russian stocks and the rouble tumbled on Thursday.
Safe-haven assets such as gold, yen and German bonds rose.
The rouble-traded MICEX stock market dropped 2.5 percent in early deals, its dollar-traded cousin, the RTS index , fell 3.2 percent and the rouble dropped as much as 1 percent against the dollar.
“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.”
The new US sanctions effectively shut off medium and longer-term dollar funding for companies close to Vladimir Putin.
The EU also expanded its punishments for certain firms and said it would ask two of its development banks to halt their lending in Russia.
The jitters gave safe-haven assets a broad lift amid concern about potential retaliation from Moscow and further escalation of the situation.
The Japanese yen, Swiss franc, gold and German government bonds all rose in early European trade after what has been a subdued session in Asia.
Elsewhere, the pan-European FTSEurofirst 300 fell 0.3 percent.
Mixed earnings reports and Wednesday's gains - the biggest in three months - bred caution among investors.
Asian equities had also dipped overnight, led by Chinese shares.
The Shanghai Composite Index fell 0.8 percent as investors moved from blue chips to some beaten-down growth stocks and kept money aside for initial public offerings (IPOs).
In the currency market, the safe-haven yen inched up to 101.50 yen on the dollar.
It hit a five-month high against the euro as a downward trend in the euro zone's shared currency continued.
“There seem 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.
Data suggesting a shaky start for Germany in the new quarter and wariness about banking problems in Portugal have hobbled the euro this week.
Revised euro zone inflation data is due at 11:00 SA time and is expected to bolster the case for record-low ECB interest rates.
By contrast, Britain is expected 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.
In commodities, US crude oil extended gains after rising more than $1 the previous day, after government data showed US stockpiles dropped last week.
US crude was up 0.25 percent at $101.45 a barrel with Brent fetching 107.66.
Gold ticked higher to trade above $1,300 an ounce but remained near a four-week low as investors weighed the possibility US interest rates would rise sooner than expected.
Aluminium held steady after touching a 16-month high on Wednesday in light of upbeat data from top consumer China at a time of producer cutbacks and eroding inventories.
But Shanghai copper fell to its lowest in a fortnight as jitters over a possible bond default in China's construction sector triggered a round of profit-taking. - Reuters