European stocks dip as Ukraine tension grows

Euro falls to near 9-month lows against the dollar

European shares fell on Tuesday, throwing a rally in the US and Asia into reverse, and the euro dipped towards nine-month lows against the dollar as reports a Russian aid convoy was heading to Ukraine ratcheted up tension between Kiev and Moscow.

Investors were waiting for a closely watched gauge of German economic sentiment, which some analysts expected will reflect the impact on the euro zone's powerhouse of Western sanctions imposed on Russia over the Ukraine crisis. The ZEW indicator is due at 0900 GMT.

"We are looking for a hard drop in the index as geopolitics is taking a toll. This comes before second-quarter GDP data on Thursday and this may form a picture that there are cracks in the euro zone recovery," said Commerzbank strategist Rainer Guntermann.

The FTSEurofirst 300 index fell 0.2% at 1,320.14 points, giving up a 1.3% gain on Monday.

The euro was down 0.2% at $1.3366, heading towards nine-month lows hit last week.

"If the ZEW collapses, concerns about Russia will become more intense," said Lutz Karpowitz, currency strategist at Commerzbank.

"That means the euro will not merely suffer as a result of a lack of momentum from other data today, but in the long run it will simply become more difficult for the euro if the European economy is unable to take off."

Russian shares traded mixed after strong gains on Monday. The dollar-denominated RTS index was flat while the rouble-based MICEX rose 0.5%. The rouble was 0.41% weaker against the dollar at 36.07

Moscow said a convoy of 280 trucks carrying humanitarian aid set off for Ukraine, a day after the head of NATO warned against using offers of help as a pretext for invasion.

Investors are also concerned about events in Iraq, where the president named a new prime minister on Monday to replace Nuri al-Maliki and the United States has bombed Islamic State insurgents who have marched through the north and the west of the country since June.

However, the price of oil fell on Tuesday, with Brent dropping more than $1 to below $104 a barrel. The political crisis has brought militia and special forces on to the streets of Baghdad, but it was not expected to disrupt crude supplies.

Things had looked brighter in Asia.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4% after Monday's 1.5% jump. In Tokyo, the Nikkei stock index firmed 0.2%.

On Wall Street, the Dow Jones Industrial average closed up 0.1% and the S&P 500 gained 0.3%.

Shares in Kinder Morgan, the biggest US pipeline company, jumped 9% to $39.37. It was the S&P 500's biggest%age gainer after the company said on Sunday it would put all its publicly traded units under one roof in a $70 billion deal.

The dollar edged higher against other major currencies, helped by a slight rise in US Treasury yields, though the geopolitical tensions that have dominated financial markets in recent weeks were expected to restrict gains.

The US currency edged up 0.1% to 102.25 yen, having hit a two-week low of 101.51 yen on Friday.

US 10-year Treasury notes yielded 2.43%, up a shade from New York closing levels.

Yields on German government bonds, the euro zone benchmark, were about flat at 1.068%. German yields touched a series of record lows in recent days as investors sought assets perceived as safe havens, before rebounding on Monday.

Gold held steady at about $1,308 an ounce. Analysts said geopolitics would be the metal's most important driver.