Asian shares slump as Ukraine tensions flare

The investors' appetite for risk was ruined and they bolstered the safe-haven yen

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Asian shares slumped in early trading on Friday, after flaring Ukraine tensions ruined investors' appetite for risk and bolstered the safe-haven yen.

Ukraine's president said Russian troops had entered his country in support of pro-Moscow rebels who captured a key coastal town, escalating a five-month-old separatist conflict. 

The United States on Thursday openly accused Russia of sending combat forces into Ukraine and threatened to tighten economic sanctions, but Washington stopped short of calling Moscow's latest step an invasion.

"Risky assets were weaker on rising concerns about Russia-Ukraine, as well as weak data out of the euro area," strategists at Barclays wrote in a note to clients.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1% in early trading, on track for a weekly drop but still poised for gain of around 0.4%.

Japan's Nikkei stock average was down 0.3%, down for the week, bringing its monthly loss to about 1.3%.

On top of geopolitical concerns, bond yields worldwide have come under pressure this week on speculation that the European Central Bank would unveil new stimulus steps as soon as next week, to stave off deflation in the euro zone.

The yield on the 10-year German Bund plunged to a record low of 0.868% on Thursday, and yield on 30-year US Treasury bonds slumped to a 14-month low of 3.059%.

Sources told Reuters on Wednesday that the ECB is unlikely to take new policy action next week unless inflation figures due to be released later on Friday show the euro zone sinking significantly towards deflation.

German inflation for August released on Thursday came in at a steady 0.8% ahead of Friday's euro zone number, in line with forecasts but well shy of the ECB's target of close-to-but-just-under 2% for the euro zone.

Corresponding Spanish figures saw a slightly smaller-than-forecast drop as revised second quarter GDP held steady.

The data pushed the euro back toward Wednesday's one-year low of $1.3152. It was last at $1.3185, steady on the day, and on track for a monthly drop of over 1.5%, after it lost 2.2% in July.

The dollar fell to 103.72, down slightly and well below its recent seven-month high of 104.49 touched earlier this week, despite a spate of Japanese data that underscored how much the nascent economic recovery is struggling to gain traction.

Japanese household spending fell more than expected and factory output remained anaemic in July after plunging last month, government data showed on Friday, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.

Spot gold was steady on the day at $1,290.23 an ounce after rising for the third straight session against a backdrop of Ukraine tension.