Wrap: Malaysia Airlines jet MH17 shot down in Ukraine; 298 dead

GRABOVO, Ukraine (REUTERS) - A Malaysian airliner was shot down over eastern Ukraine by pro-Russian militants on Thursday, killing all 298 people aboard, a Ukrainian interior ministry official said.

Raising the stakes in the East-West showdown between Kiev and Moscow, the official blamed "terrorists" using a ground-to-air missile and Ukraine's prime minister called the downing of the flight from Amsterdam to Kuala Lumpur a"catastrophe".

A Reuters correspondent saw burning wreckage and bodies on the ground at the village of Grabovo, about 40 km from the Russian border in an area where pro-Russian rebels have been active and have claimed to have shot down other aircraft.

An emergency services rescue worker said at least 100 bodies had so far been found at the scene, near the village of Grabovo, and that debris from the wreckage was spread across an area up to about 15 km in diameter.

Broken pieces of the wings were marked with blue and red paint - the same colours as the emblem of the Malaysian airline which lost track of a Boeing 777 en route from Amsterdam to Kuala Lumpur that was carrying almost 300 people. "I was working in the field on my tractor when I heard the sound of a plane and then a bang and shots. Then I saw the plane hit the ground and break in two. There was thick black smoke,"said a witness, who gave his name only as Vladimir.

Malaysian Prime Minister Najib Razak said on Friday he was shocked by the reports and was launching an investigation. “I am shocked by reports that an MH plane crashed. We are launching an immediate investigation,” Datuk Seri Najib said on his Twitter feed. MH is the code for Malaysia Airlines.

The incident comes after a Malaysia Airlines plane went missing on March 8 on a flight from Kuala Lumpur to Beijing with 239 passengers and crew on board. It has not been found.

A separatist rebel from nearby Krasnyi Luch who gave his name only as Sergei said: "From my balcony I saw a plane begin to descend from a great height and then heard two explosions. 

He denied the rebels had shot the plane down. "This could happen only if it was a fighter jet or a surface-to-air missile (that shot it down)," he told Reuters, saying the rebels did not have weapons capable of shooting down a plane at such a height. 

Ukrainian interior ministry official blamed "terrorists" using a ground-to-air missile.

Ukraine's Prime Minister called the downing of the flight from Amsterdam to Kuala Lumpur a "catastrophe".

The Boeing 777 came down near the city of Donetsk, stronghold of pro-Russian rebels, interior ministry official Anton Gerashchenko said on Facebook, adding it was "shot down with a Buk anti-aircraft system by terrorists" - the term the Kiev government uses for militants seeking to unite eastern Ukraine with Russia.

Malaysia Airlines said on its Twitter feed it had lost contact with its flight MH-17 from Amsterdam. "The last known position was over Ukrainian air space," it said.

Later, the airline released a statement on Facebook. The full statement as follows:

"Malaysia Airlines confirms it received notification from Ukrainian ATC that it had lost contact with flight MH17 at 1415 (GMT) at 30km from Tamak waypoint, approximately 50km from the Russia-Ukraine border.

"Flight MH17 operated on a Boeing 777 departed Amsterdam at 12.15pm (Amsterdam local time) and was estimated to arrive at Kuala Lumpur International Airport at 6.10am (Malaysia local time) the next day. The flight was carrying 280 passengers and 15 crew onboard."

Russian President Vladimir Putin and his US counterpart Barack Obama have spoken about crash, the Kremlin said on Thursday.

"The Russian leader informed the US President about an air-traffic controllers' report that came just before their phone conversation that a Malaysian plane crashed in Ukraine," the Kremlin said in a statement.

Mr Obama, during the phone call with Mr Putin, warned Moscow of more sanctions if it does not change course in Ukraine. "I can confirm that President Putin near the end of this morning's phone call with President Obama noted the early reports of a downed passenger jet near the Russia-Ukraine border," White House spokesman Josh Earnest said.

Mr Earnest, briefing reporters on Mr Obama's Air Force One flight from Washington to Delaware, said Mr Obama was briefed by his advisers on the crash and directed top US officials to remain in close contact with Ukrainian officials. "I can confirm that we've seen those reports but I'm not in a position to confirm any of the details at this point," Mr Earnest said.

The Obama-Putin phone call was made at the request of Moscow a day after the United States and European countries imposed new sanctions on Russia over its aggression against Ukraine.

The new round of US sanctions included penalties against Russia's largest oil producer, Rosneft and other energy, financial and defense firms.

Mr Obama told Mr Putin "additional steps are on the table if Russia doesn't change course," Mr Earnest said.

The United States is committed to ensuring that this international norm of countries respecting the territorial integrity of other countries is prioritised." "The president's made clear that the international community, the United States and our European allies are willing to take steps and impose economic costs on Russia if they decline to respect those basic norms," Mr Earnest said.

Separatist leader Aleksander Borodai blamed the downing of a Malaysian passenger airliner in eastern Ukraine on the country’s government forces. “Apparently, it’s a passenger airliner indeed, truly shot down by the Ukrainian Air Force,” Mr Borodai told Russia’s state-run Rossiya 24 TV broadcaster.

Kiev denied the involvement of Ukraine’s armed forces.

Interfax-Ukraine quoted another Ukrainian official as saying the plane disappeared from radar when it was flying at 10,000m, a typical cruising altitude for airliners.

Ukraine has accused Russia of taking an active role in the four-month-old conflict in recent days and accused it earlier on Thursday of shooting down a Ukrainian Sukhoi Su-25 fighter jet - an accusation that Moscow denied.

The military commander of the rebels, a Russian named Igor Strelkov, had written on his social media page shortly before the report of the airliner being downed that his forces had brought down an Antonov An-26 in the same area. It is a turboprop transport plane of a type used by Ukraine's forces.

Air France on Thursday it had decided to avoid east Ukrainian airspace after Malaysia Airlines flight MH17 crashed in a field in Ukraine near the Russian border. "Air France is monitoring the situation in real time and decided to no longer fly over eastern Ukraine after it was informed of this incident," a spokesman for Air France said.

Separately, Russian airline Transaero said it would avoid Ukrainian airspace for all future flights.

United States stocks dropped on Thursday to hit session lows on news that a Malaysian passenger jetliner had been downed in Ukraine, fresh on the heels of new US and European Union sanctions on Russia.

"Clearly there is a lot of speculation, there are even videos surfacing on YouTube and the market is quite sensitive to things it can only verify by Twitter," said Mr Joseph Greco, managing director at Meridian Equity Partners in New York. "President Obama had some words about sanctions and as you know, that is going to be a bit of an issue."

The iShares China Large Cap ETF lost 0.8 per cent. The NYSEArce airline index was down 1.6 percent.

The US sanctions announced late Wednesday hit some of Russia's biggest firms while the EU sanctions were aimed at Russian companies that help destabilize Ukraine and will block new loans to Russia through two multilateral lenders. The Market Vectors Russia ETF dropped 5.5 per cent.

Equities had been holding near the unchanged mark earlier in the session, largely on the back of solid earnings from companies such as Morgan Stanley, which was down 0.1 percent at US$32.46, and UnitedHealth, up 3.4 per cent at US$86.62.

Microsoft shares rose 2.9 per cent to US$45.34 after the company said it would cut up to 18,000 jobs, or about 14 per cent of its workforce, resulting in pre-tax charges of $1.1 billion to US$1.6 billion over the next four quarters.

The Dow Jones industrial average fell 51.27 points or 0.3 per cent, to 17,086.93, the S&P 500 lost 9.51 points or 0.48 per cent, to 1,972.06 and the Nasdaq Composite dropped 28.99 points or 0.66 per cent, to 4,396.98.

Economic data on manufacturing and the labor market indicated the economy was gaining traction, although the housing market remains weak. The PHLX housing index lost 1.5 per cent.

S&P 500 companies' profits are expected to grow 4.9 per cent in the second quarter, according to Thomson Reuters data, down from the 8.4 per cent growth forecast at the start of April. Revenue is seen up 3 per cent.

Thomson Reuters data also shows that of the 66 companies in the S&P 500 that have reported earnings through Thursday morning, 68.2 per cent have topped Wall Street expectations, roughly in-line with the 67 per cent rate for the past four quarters and above the 63 per cent rate since 1994.