GLOBAL MARKETS-Bruised stocks sag before U.S. earnings start

Reuters - UK Focus

* Investors get ready for start of U.S. earnings season

* Rising Ukraine tension keeps risk appetite in check

* Bank of Japan maintains monetary policy as expected

By Marc Jones

LONDON, April 8 (Reuters) - A three-day sell-off in worldstocks slowed on Tuesday as investors settled into position forthe start of U.S. earnings season and gains in China added tosigns of revived emerging-market demand.

Wall Street, nursing the bruises of the biggest drop for thetech-focused Nasdaq since late 2011 and in two monthsfor the S&P 500 and Dow Jones indexes, wasexpected to see a calmer conditions when trading resumes.

European shares and bonds were both being dragged down,however, by ongoing caution amid renewed tension in Ukraine andsigns the European Central Bank may not be as eager to beginlarge-scale stimulus as had been hoped.

As U.S. trading neared, London, Paris andFrankfurt were almost 1 percent lower, while recentstrong-performing Spanish, Italian andPortuguese indexes were down 1.5, 1.3 and 2.3 percentrespectively.

There was no place to hide in the region's debt marketseither. Euro zone bond yields, a proxy for government borrowingcosts, rose in near perfect harmony while the euro strengthened to its highest in a almost a week.

"The QE (quantitative easing) talk continues to be very muchin focus in Europe," said Jan von Gerich, the chief developedmarkets strategist at Nordea in Helsinki. "The ECB is clearlytempering the expectations, and I think the Ukraine news is alsocontributing to the weakness."

Earlier, Asian stocks had managed to shrug off the gloomfrom Wall Street. Chinese shares, particularly thoseof banks, rose on stimulus hopes and helped to take MSCI (NYSE: MSCI - news) 'sbenchmark emerging market index to its highest sincemid-December.

Emerging markets have rebounded sharply in the past twoweeks. Investors appeared to have largely put aside the worriesabout geopolitics, slowing U.S. stimulus and China's stutteringeconomy that had fuelled their turbulent start to the year.

It wasn't all one way traffic though. Japan's Nikkei fell 1.4 percent on concern over global tech stocks. The yenalso rose as the Bank of Japan kept its policy steady onTuesday and offered little to suggest more stimulus was likelyin the near term.

UKRAINE STRAINS

The latest Wall Street shakeout comes as investors preparefor the first-quarter corporate earning season, which begins later when resources giant Alcoa (NYSE: AA - news) reports results after theclose.

After a stellar 2013 there are signs that investors may befalling out of love with developed market stocks.

New flow data from Swiss bank UBS (Xetra: UB0BL6 - news) showed buying of Europeanshares by U.S. investors has slowed for the first time sinceOctober 2012, while UK asset manager Threadneedle Investmentssaid it had halved its 'overweight' in stocks.

Rising tensions in Ukraine also tempered investor appetitefor risk. Police detained 70 people occupying a regionaladministration building in eastern Ukraine overnight, butpro-Moscow protesters held out in a standoff in two othercities, in what Kiev called a Russian-led plan to divide thecountry.

Against the yen, the dollar fell about 0.8 percent to 102.24yen, well off the 2 1/2-month high of 104.13 yen itreached on Friday.

The euro also bumped lower, down about 0.4 percent to 140.94yen. But the cooling QE talk pushed it up against thedollar at 1.3788, rebounding from Friday's five-week lowof $1.3672.

After ECB policymakers stoked expectations at their policymeeting last week, some of the more conservative memberssuggested on Monday the bank was not yet ready to begin the kindof mass asset-buying used in the United States, Japan and UK.

"QE is definitely something that the ECB has been discussing,but we still think the bar to full blown-purchases of governmentbonds is still very, very high," said Vasileios Gkionakis Globalhead of FX strategy at UniCredit (Berlin: CRIH.BE - news) in London.

GOLD, OIL FIRM

World financial powers are set to gather this week at theIMF's Spring Meeting. Washington engaged in some pre-meetingjockeying with China, warning Beijing that recent depreciationof the Chinese currency could raise "serious concerns".

Much of the focus is likely to concentrate on Russia's movesinto Ukraine. They are being met with the threat of strongersanctions from the West, though Russian stocks and therouble seemed largely unconcerned on Tuesday.

In commodity markets, safe-haven gold was tradingaround two-week highs, up about 1.2 percent from the previoussession at $1,311.45 an ounce.

U.S. crude for May gained about 0.7 percent to$101.20 a barrel, pushed up by the renewed tensions overUkraine, a major supply route for Russian gas to Europe. But therise was capped by expectations U.S. crude oil stocks werebuilding up.

Brent rose 0.5 percent to $106.35 a barrel. (Reporting by Marc Jones; Editing by Larry King and AngusMacSwan)

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