Russia-West tensions pressure stocks, buoy oil prices

By Sujata Rao

LONDON date (Reuters) - World stocks held just off 10-day lows on Monday, pressured by tensions between Russia and the West over Ukraine, although European markets were buoyed by a 15 percent jump in takeover target AstraZeneca.

Markets, especially in Asia, also took a hit from signals that Chinese authorities are not likely to support the economy with more stimulus, but the main impetus was coming from developments in Ukraine.

Leaders of the Group of Seven (G7) major economies could announce far-reaching sanctions on Russia as early as Monday, extending previous limited measures against some Russian individuals and companies for their role in Moscow's annexation of Ukraine's Crimea region.

Heavily-armed pro-Russian separatists, who Kiev and the West believe are backed by the Kremlin, have proclaimed an independent "people's republic" in the eastern Ukrainian city of Donetsk, while holding several European monitors hostage in nearby Slavyansk.

Fears of outright war are weighing on world stock markets, boosting oil prices and prompting some investors to seek safety in assets such as the yen, which was close to one-week highs against the dollar .

"With the Russia-Ukraine crisis rumbling on, affecting financial markets in both emerging and developed economies, investors are apt to ask for how long it will continue," SEB analyst Per Hammarlund said.

"If (Russian President Vladimir Putin) continues to pursue this tactic (of supporting rebels from outside) the implications are that the process will be drawn out for global markets."

MSCI's world equity index , which tracks shares in 45 countries, was flat after falling 0.7 percent on Friday. But European stocks LONDON:FTEU3 rose 0.4 percent, after drugmaker U.S. Pfizer N:PFE announced a bid for British rival AstraZeneca .

Expectations of merger-related inflows also helped sterling to a new 4-1/2 year high .

Emerging stocks L:MSCIEF slumped to a one-month low, however, dragged down by a 1.5 percent fall in China L:SSEC where President Xi Jinping was reported as telling a Politburo meeting that fiscal and monetary policies would stay unchanged.

Russian stocks fell 1 percent L:MCX while the cost of insuring against a Russian default in the credit default swaps (CDS) market jumped to the highest since November 2011.

The potential energy implications of a war in Ukraine or even Western sanctions against Russia are keeping oil prices elevated, with Brent crude futures rising above $110 a barrel and heading for a recent seven-week high. June U.S. crude futures were up 71 cents to $101.32 a barrel.

"The way Russia can really hurt the west is to shut off energy supplies. So people feel that there's a possibility, I guess," said Tony Nunan, a risk manager at Mitsubishi Corp.

The dollar pulled back against a basket of six major currencies , touching a two-week low ahead of a meeting of the U.S. Federal Reserve which is expected to see the central bank cut another $10 billion from its monthly bond-buying plan.

The euro meanwhile firmed to two-week highs against the dollar before mid-week data that is expected to show inflation ticking higher, easing pressure on the European Central Bank to loosen monetary conditions in the near term.

On bond markets, Slovenian 10-year bond yields jumped 19 basis points to 3.89 percent after Prime Minister Alenka Bratusek lost a vote for the leadership of her centre-left party, Positive Slovenia.

German Bund futures moved 10 ticks lower.

(Editing by Catherine Evans)