By Hideyuki Sano
TOKYO (Reuters) - Asian shares began the week on a cautious note on Monday as investors braced for an escalation in East-West tensions after pro-Moscow rebels declared victory in a referendum on self-rule in eastern Ukraine.
Organisers of the weekend referendum said nearly 90 percent had voted in favour, possibly opening the way for the region to break away from Kiev in a conflict increasingly out of control.
Western leaders, faced with Russian assertiveness not seen since the Cold War, have threatened more sanctions in the key areas of energy, financial services and engineering if Moscow disrupts a presidential election planned in Ukraine on May 25.
The reaction in markets has been muted so far, with U.S. stock futures
But the latest developments gave investors little reason to plough into riskier assets.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent, while Japan's Nikkei share average TOKYO:N225 also ticked up 0.1 percent.
"Given a dearth of trading factors today, markets will pay attention to how Kiev and Moscow will react to the results of referendum," said Masafumi Yamamoto, chief strategist at Praevidentia Strategy.
"There could be military intervention by Russia, or more armed operations by Ukraine and the West could impose more sanctions on Russia. These could lead to fall in U.S. bond yields and the dollar/yen," he added.
U.S. Treasuries were slightly weaker, with the June 10-year T-note futures price falling 2.5/32
The yen was little changed with the dollar trading at 101.84 yen
One of the early movers were precious metals, with gold extending last week's loss to drop 0.7 percent to $1,280.20 per ounce
Despite the simmering geopolitical concerns, global shares rallied last week, with the Dow Jones Industrial average NYSE:DJI posting a record closing high on Friday. European shares LONDON:FTEU3 also hit six-year high.
One of the driving forces for these stock markets is the prospect of continued policy support from their central banks.
Dovish comments from Fed Chair Janet Yellen last week underpinned risk assets around the globe, including many emerging market currencies.
European Central Bank President Mario Draghi also warned on Thursday that the euro's strength was a serious concern and that the ECB was comfortable with taking more action to support economic growth.
The euro has been on the defensive since then, and last traded at $1.3758
There is little in the way of major economic releases on Monday. On Tuesday, industrial production, retail sales in China and U.S. retail sales will be closely watched.
(This story was refiled to fix typographical errors in paragraphs 1, 4)
(Editing by Shri Navaratnam)