Tokyo - Asian shares began the week on a cautious note on Monday as investors braced for a possible escalation in East-West tensions after anti-Kiev rebels declared victory in a referendum on self-rule in eastern Ukraine.
Organisers of the weekend referendum said nearly 90 percent had voted in favour, possibly opening the way for the region to break away from Kiev in a conflict increasingly out of control.
Western leaders have threatened more sanctions in the key areas of energy, financial services and engineering if Moscow disrupts a presidential election planned in Ukraine on May 25.
The reaction in markets has been muted so far, with U.S. stock futures edging up 0.1 percent and US bond prices down slightly.
But the latest developments gave investors little reason to plough into riskier assets.
MSCI's broadest index of Asia-Pacific shares outside Japan ticked down 0.1 percent while Japan's Nikkei share average was almost flat.
Oil prices rose slightly on concerns about Ukraine, with US crude futures rising above $100 per barrel.
“Given a dearth of trading factors today, markets will pay attention to how Kiev and Moscow will react to the results of referendum,” said Masafumi Yamamoto, chief strategist at Praevidentia Strategy.
“There could be military intervention by Russia, or more armed operations by Ukraine and the West could impose more sanctions on Russia. These could lead to falls in US bond yields and the dollar/yen,” he added.
The yen was little changed with the dollar trading at 101.84 yen, having found support around 101.40 last week.
Despite the simmering geopolitical concerns, global shares rallied last week, with the Dow Jones Industrial average posting a record closing high on Friday. European shares hit a six-year high.
“At the end of the day, US corporate earnings will be little affected by Ukraine. Unless market sentiment drastically changes, stocks are likely to be supported,” said Takuro Nishida, deputy manager of investment planning at Nipponkoa Insurance.
One of the driving forces for stock markets is the prospect of continued policy support from the Federal Reserve and the European Central Bank.
Dovish comments from Fed Chair Janet Yellen last week underpinned risk assets around the globe, including many emerging market currencies.
European Central Bank President Mario Draghi warned on Thursday that the euro's strength was a serious concern and that the ECB was comfortable with taking more action to support economic growth.
The euro has been on the defensive since then, and last traded at $1.3758, not far from the one-month low of $1.3745 hit on Friday.
There is little in the way of major economic releases on Monday. On Tuesday, industrial production and retail sales in China and US retail sales will be closely watched. - Reuters