LONDON (AFP) - Europe's main stock markets perked up Friday on strong US jobs data but the optimism proved short-lived as Russian energy giant Gazprom's threat to cut off gas to Ukraine quickly sent the indices back down.
Frankfurt's DAX 30 tumbled 2.01 per cent to close at 9,350.75 points, while London's FTSE 100 dropped 1.12 per cent to 6,712.67 points and in Paris the CAC 40 fell 1.15 per cent to 4,366.42 points.
The indices had briefly ticked up after Washington said the US economy generated 175,000 jobs in February, a rebound from two poor months.
"The US labour market rebounded more than expected in February... Consensus had been for a 149k rise," said Robert Wood, chief economist at Berenberg.
But then Gazprom warned Kiev of "a return to the situation at the start of 2009" when the energy giant halted gas to Ukraine in a move that also left much of the EU without supplies, leading to sharp sell-off in stocks.
"The quite encouraging US employment figures caused a positive reaction, but the situation is still tense in Ukraine with Gazprom's threats keeping the markets under pressure," said Saxo Bank analyst Andrea Tueni.
Nevertheless the positive employment numbers lifted the dollar, strengthening the currency to 103.36 yen from 103.07 yen.
It also shaved euro gains, bringing the bloc's common currency off a two-year high of $1.3915 in morning trade to $1.3866. On Thursday, it was trading at $1.3859 late in New York.
Wall Street opened firmer following the employment numbers, but later turned mixed.
In midday trading the Dow Jones Industrial Average added 0.17 per cent to 16,450.21 points.
The broad-based S&P 500 slid 0.08 per cent to 1,875.58, while the tech-rich Nasdaq Composite Index shed 0.44 per cent to 4,333.17.
On the London Bullion Market, the price of gold gained to $1,335.25 an ounce from $1,345.25 on Thursday.
Investors had been looking to US jobs data for guidance, with optimism fueled by Thursday's numbers showing that first-time claims for unemployment benefits had fallen last week to a three-month low of 323,000 from the prior week's revised reading of 349,000.
That data helped push up most Asian stock markets.
Tokyo rose 0.92 per cent, Sydney added 0.30 per cent, while Seoul finish flat.
Shanghai edged a touch lower while Hong Kong eased 0.19 per cent.
But Ukraine quickly came back into focus in European markets as Gazprom chief executive Alexei Miller said: "Ukraine has de-facto stopped paying for gas... We cannot deliver gas for free. Either Ukraine pays the debt and pays for current supplies or the risk appears of a return to the situation at the start of 2009." The supply cut in 2009 left some European households freezing in the dead of winter and also hit industry.
Miller said that Friday was the final cut-off date for payments for February's gas deliveries to Ukraine.
"Gazprom has not received the payment on its account. The debt due has increased and is now $1.89 billion," he added.
Turning off gas to Ukraine would punish the new Ukrainian government that took over after the ousting of president Viktor Yanukovych, which Russia has so far refused to recognise.
But it would also hit Europe, which cheered the fall of Yanukovych and relies on Ukraine for the transit of much of the gas that it receives from Russia.
Europe imports around of a third of its total gas needs from Russia.
Gazprom has already said it will end the substantial discount that Ukraine receives on market gas prices from April. But the European Union has said it will help Ukraine pay its bills.