Asian markets slipped on Friday and gold stood at an eight-month high after an exchange of fire in eastern Ukraine and renewed U.S. warnings of an imminent Russian invasion had investors looking for safety ahead of the weekend.
MSCI's broadest index of Asia-Pacific shares outside Japan, was down 0.3% in early trade. Japan's Nikkei fell 1.4%. Korean shares and Australian shares each fell 1%.
On Wall Street overnight the Dow Jones' 1.8% fall was its worst session of the year, the S&P 500 fell 2.1% and the Nasdaq dropped 2.9%. [.N] Gold shot to an eight-month high of $1,900 an ounce and held its gains.
"The market will be on high alert over the possibility of a Russian invasion next week once the Beijing Olympics are over," analysts at ANZ Bank said in a note.
Russian-backed rebels and Kyiv's forces traded accusations that each had fired across a ceasefire line on Thursday and U.S. president Joe Biden said his sense was that a Russian invasion "will happen in the next several days."
Investors fear a wider war as one of the deepest crises in post-Cold War relations plays out, with Russia wanting security guarantees, including Ukraine's never joining NATO.
Overnight safe-haven currencies such as the Japanese yen and Swiss franc climbed to two-week highs on the dollar, with the yen edging a tad higher still in Asia to 114.84 per dollar.
Treasuries rallied with the benchmark 10-year yield downs seven basis points (bps) overnight and two more in early Tokyo trade to 1.9493%. Two-year yields were also down 2 bps to 1.4436% in Asia trade.
The moves unwind initial relief that had swept asset prices with Russian statements about withdrawing some of its troops from border regions though oil, which had surged at tense moments in the crisis has fallen through the week.
Brent crude futures were last steady at $92.97 a barrel, about 4% below Monday's peak, and U.S. crude hovered at $91.63 a barrel.
RATES RACE
Concern about conflict in Ukraine comes with markets already rattled by a rates outlook that could hold as many as seven Federal Reserve increases in the year ahead.
St. Louis Fed president James Bullard on Thursday reiterated his call for the Fed funds rate to be raised to 1% by July to combat stubbornly high inflation and Fed funds futures price about a 1/3 chance of a 50 bps hike next month to begin.
Cleveland Fed President Loretta Mester said the pace of hikes will need to be faster than previous cycles.
"Markets have been particularly volatile recently and virtually everyone adjusted their Fed hike calls higher," said NatWest Markets' strategist Jan Nevruzi.
"The consensus seems to range between 5 (our view) and 7 (every meeting) hikes and I do believe the right number lays somewhere in between. Given the strong growth trend and elevated inflation, it wouldn't be too surprising to see a hike at every meeting from now on," Nevruzi said.
On Friday, Japan reported a fifth straight month of inflation, with energy prices posting their biggest annual rise in 41 years.
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