Malaysia Airlines MH17 crash in Ukraine amplifies move to safer assets

NEW YORK (Reuters) - Stock markets around the world on Thursday were sharply lower and safe-haven investments like gold and government bonds rose after news that a Malaysia Airlines jet was shot down over eastern Ukraine near the Russian border.

Almost 300 people died in the crash, caused by a missile fired at the plane, according to a Ukrainian official. The incident follows an increase in tensions between Ukraine and Russia that has resulted in clashes along the border, including the targeting of military aircraft also.

The crash stoked concerns that the conflict in Ukraine might widen after US sanctions against Russia were announced late Wednesday.

The Russian rouble fell 1.8 per cent against the US dollar, its biggest one-day decline since June 2013. Major European stock indexes fell just before the close of trading. Moscow's MICEX stock market fell 2.3 per cent and its dollar-traded related index, the RTS index, dropped 3.8 per cent.

"We started the day on an unstable geopolitical situation... then out of the blue you get this tragedy," said Mr Art Hogan, chief market strategist at Wunderlich Securities in New York.

"The market, we know, doesn't like uncertainty and that is what it's facing right now."

The report sparked a shift to safe-haven assets such as US government bonds. The benchmark US 10-year Treasury note rose 15/32 in price, dropping the yield to 2.482 per cent, not far from the 2014 low of 2.438 per cent.

Gold prices jumped more than 1.5 per cent in their biggest one-day advance in about a month. Silver prices rose 2.0 per cent.

However, analysts expected the market impact of the crash to be short-lived.

"For a sustained sub-2.50 per cent on the 10-year yield, we need another catalyst to support the idea the economy is not as strong as some people think," said Mr Anthony Valeri, fixed income strategist at LPL Financial in San Diego.

Wall Street stocks hit session lows after the aircraft crash, but have since recovered some losses.

Stocks of airline companies were especially hit hard, with the NYSE Arca Airline Index dropping 1.3 per cent.

The Dow Jones industrial average fell 49.7 points or 0.29 per cent, to 17,088.5, the S&P 500 lost 10.11 points or 0.51 per cent, to 1,971.46 and the Nasdaq Composite dropped 32.39 points or 0.73 per cent, to 4,393.58.

European shares ended their session near their lows of the day. The pan-European FTSEurofirst 300 was down 1.0 per cent and the MSCI International ACWI Price Index increased losses to 0.5 per cent.

The Japanese yen rose 0.4 per cent against the dollar, while the Swiss franc was little changed and the US dollar was flat against a basket of currencies.

US crude futures rose 1.5 per cent to US$102.72 per barrel.

Prior to the report of the crash, Wall Street stocks edged lower on a weak read on US housing starts, which fell well short of expectations in June.

Investment bank Morgan Stanley reported results that topped expectations, but the stock pared its early advance to trade at break-even levels.