Moscow - Russian markets took a further tumble on Friday after the crash of a Malaysian plane in rebel-held east Ukraine dramatically raised tensions between the Kremlin and the West.

The disaster which claimed the lives of all 298 people on board came after Washington and Brussels introduced biting new sanctions against Moscow on Thursday, with the United States targeting companies in the military, energy and finance sectors.

“The plane catastrophe was a real shock for those investors who had started to believe that it was all about de-escalation,” said Slava Smolyaninov, chief strategist at Uralsib Capital.

“For the market, it really was a bad confluence of events with the US sanctions in the morning and the plane tragedy in the evening. Unsurprisingly, investors are taking money off the table in view of higher risks,” he told AFP in e-mailed comments.

In Moscow, the ruble-denominated Micex stock index fell by 1.67 percent in early trading, and the dollar-based RTS index was down 2.23 percent.

The ruble fell to 35.1 to the dollar and to 47.5 to the euro.

Shares in flagship airline Aeroflot were down 2.97 percent to 55.60 rubles after the company restricted some of its flights to Ukraine.

Shares in state oil giant Rosneft, one of the main targets of new sanctions against Russia over the crisis in Ukraine, fell further, losing 1.49 percent to 230.22 rubles.

The introduction of a new round of Western sanctions had also triggered a sharp fall in Russian markets on Thursday, with shares in two energy giants targeted by punitive measures, state oil firm Rosneft and private company Novatek, also taking a pummelling.

“News of the Malaysian airline crash sent geopolitical tension to a new level,” Sberbank CIB said.

The crash shocked the world and triggered a fierce blame game, with Russia and Ukraine pointing a finger at each other and analysts warning that the West could take punitive measures against Russia to a new level.

The UN Security Council meeting is set to hold an emergency meeting later on Friday.

“Apart from the fall-out from the air crash, the major short- to medium-term risks are linked to currency, i.e. a weak ruble leads to higher inflation and higher capital flight, plus the real risk of a shortage of domestic bank lending for small and medium sized enterprises as well as to consumers,” wrote Macro Advisory partner Chris Weafer.

“We have now clearly entered the most dangerous phase of the crisis,” he added in a comment to clients.

“The major danger is that Moscow rejects any criticism of its support for the separatists and does not facilitate a peace process. The resulting stage 3 sanctions would cripple investment and keep growth at the current low level for a long time.” - Sapa-AFP