Global Markets - Europe drops after Russia sanctions, ECB; Wall Street slips

By Chuck Mikolajczak

NEW YORK (Reuters) - European shares slumped and the euro lost ground on Thursday and investors moved to safe-haven government debt after a stronger-than-expected move by Russia to ban certain imports from Europe and the United States.

Initial gains on Wall Street faded, with the S&P 500 just below its 100-day moving average of around 1,913, a significant technical support level. More broadly, MSCI's world equity index lost 0.5 percent.

German government debt yields fell to all-time lows, on increased concern over the effect Ukraine's crisis will have on euro zone growth. The European Central Bank said following its monthly policy-setting meeting that a sanctions war could worsen the growth outlook on the continent, where demand is already weak.

"The sanctions Europe has put in are real and have teeth, the problem is they are going to bite both ways. So you have a slow European recovery that is going to get even slower, which could push it back over the edge," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

"I don't get worried until we hit the 200-day (moving average), but I'm starting to get a little bit concerned."

The ECB held borrowing rates at record low levels on Thursday. Europe's main bourses closed lower, with London's down 0.6 percent, Germany's DAX off 1 percent and France's CAC 40 down 1.4 percent. The move for the DAX put the index down 10 percent from its record closing high in early July.

"Geopolitical risks are heightened, are higher than they were a few months ago. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they ... have on other parts of the world," said ECB head Mario Draghi, in post-meeting comments.

Russia said on Wednesday it would ban all food imports from the United States and all fruit and vegetables from Europe in a stronger-than-expected answer to Western sanctions for Moscow's support for separatists in Ukraine.

German Bunds slid to a record low of 1.069 percent while the 10-year UK gilts yield touched a one-year low of 2.476 percent. [GVD/EUR]

Gold climbed back above $1,300 an ounce to hit a high of $1,314.40, breaking through technical resistance that could spur further gains, and 10-year U.S. bond yields touched near a two-month low at 2.43 percent.

The tensions have, however, aided the ECB's efforts to push down the euro. The shared currency was hovering just above a nine-month low against the dollar at $1.3363.

Portuguese stocks, slumped 2.3 percent, and bonds were again showing significant weakness amid worries the country and its banks will have to pay dearly for the rescue of Banco Espirito Santo.

U.S. stocks succumbed to concerns over Russia after a higher opening as initial enthusiasm from an unexpected drop in jobless claims waned.

The Dow Jones industrial average fell 75.01 points or 0.46 percent, to 16,368.33, the S&P 500 lost 10.65 points or 0.55 percent, to 1,909.59 and the Nasdaq Composite dropped 20.09 points or 0.46 percent, to 4,334.97.

As fighting has intensified on the ground in eastern Ukraine, NATO said Moscow had massed around 20,000 combat-ready troops on the Ukrainian border and warned of a possible advance.

Russia's dollar-denominated RTS index, which is down nearly 9.3 percent over the past three weeks, lost 0.3 percent while its rouble-based MICEX shed 0.1 percent, giving it a 6.3 percent decline over the same period.

U.S. crude settled up 42 cents to $97.34 while Brent broke through the $105 mark to settle up 85 cents at $105.44 per barrel. [O/R]

(Editing by Nick Zieminski and Meredith Mazzilli)