File picture: Alex Grimm

London - A semblance of calm returned to world markets on Wednesday after two days of intense volatility as the United States and Russia were 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, after Russian President Vladimir Putin had said on Tuesday that military force would only be used a last resort.

Wall Street and Asian stock markets had both rallied overnight but having led the moves and surged more than 2 percent on Tuesday, European shares saw an early dip of 0.1 percent as currency and bond markets also stabilised.

German sports giant Adidas underscored the difficulties the recent emerging market turbulence is causing some firms as it warned tumbling currencies such as Russia's rouble would take a heavy toll on its profits.

The euro had tip-toed lower overnight and a subdued start to European trading left it at $1.3733.

Russian stocks fell 1.5 percent after bouncing almost 6 percent on Tuesday but benchmark German Bunds lost ground as safe-haven demand waned.

“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 quiet in the Crimea allowed attention to stray back towards Thursday's European Central Bank meeting and closely-watched US jobs data which come in the form of ADP numbers later and non-farm payrolls on Friday.

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 worse like deflation.

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.

In Asia, Tokyo's Nikkei had climbed 1.2 percent after the S&P 500 on Wall Street had closed at its latest record high.

Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo, said markets had taken Putin's comments on military intervention being only a last resort, positively.

“While it looks like Russia's control of Crimea is becoming a fait accompli, there is no further escalation and no major sanction by the G7 other than skipping the G8 meeting,” Monji said.

In the currency market, the calmer geopolitics kept the yen on the back foot after a heavy reversal on Tuesday.

The dollar was buying 102.14 yen, moving away from a one-month low of 101.20 hit on Monday, while the euro bought 140.23 yen .

Further south, the Australian dollar gained to $0.8964 on revived risk appetite and data showing the country's economic growth had beaten forecasts.

Australia's major trading partner China also said on Wednesday it would maintain its economic growth target for 2014 at around 7.5 percent, as expected, and push forward convertibility of the yuan.

Analysts said the statement was an indication that China would widen the yuan's trading band going forward, further signalling a possible end to the currency's one-way appreciation .

On the commodities front, US crude was treading water at $103.29, after falling $1.59 on Tuesday. The contract hit its highest level since Sept. 20 on Monday at $105.22.

Spot gold, one of the other safe-haven assets that rose following the flare up in Russia-West tensions was nearly flat at $1,334.70 in early European trading an ounce after dropping 1.2 percent on Tuesday.

“Gold is currently very sensitive to geopolitical tensions,” said Mark To, head of research at Hong Kong's Wing Fung Financial Group.

“Some kind of pull-back is very possible given the price gains this year but in the short term it depends on the news flow.” - Reuters