GLOBAL MARKETS-Ukraine tensions hit shares, euro drops to 2-week low

* Russian rouble hits 5-year low vs dollar

* Euro hits 2-week low as soft data adds to general uncertainty

* Dollar index at 2-week high, U.S. yields at 2-week low

* Yuan rebounds but still below PBOC fixing

* European shares fall 0.6 pct in morning trading

By Marc Jones

LONDON, Feb 27 (Reuters) - Political and military tension in Ukraine and Russia curbed risk appetite on Thursday, weighing on world stocks and pushing the euro, already under pressure from interest rate cut talk, to a two-week low.

Sabre-rattling over Ukraine grew as Russia's Defence Ministry was quoted as saying fighter jets along its western borders have been put on alert, a day after it called a snap military exercise of 150,000 troops. News Search ID:nL6N0LV2O4

Ukraine said it would regard any movements by Russian military in Crimea outside the Russian Black Sea fleet's base in Sevastopol as an act of aggression. News Search ID:nL6N0LW1TR

Market moves were inevitably biggest closest to the events.

The Russian rouble hit a fresh five-year low against the dollar RUBUTSTN=MCX , while the Ukrainian hryvnia UAH= hit a record low as its central bank abandoned its managed exchange rate policy. News Search ID:nL6N0LV1JM

The rhetoric kept Europe's main stock markets .FTEU3 pegged back in early trading. But it was the euro EUR= that appeared to be bearing the brunt of the uncertainty as it dropped 0.25 percent to a two-week low of $1.3641.

There was plenty of additional pressure. A downward revision to Spanish fourth-quarter GDP figures came alongside ECB data showing little improvement in the amount of credit reaching euro zone firms. News Search ID:nL6N0LV3UV

The first flurry of German inflation figures also suggested there would be scant pick-up in euro zone inflation when it is published on Friday. News Search ID:nECB001153 News Search ID:nECB001154

The ECB meets next week and is under pressure to cut interest rates again and dip back into its unconventional policy cupboard to ensure the euro zone doesn't become mired in deflation.

"The key for today is the German inflation data because that is going to give the market a view of the euro zone number tomorrow," said Bank of Tokyo Mitsubishi FX strategist Derek Halpenny.

YUAN STEADIES

The backdrop of geopolitical uncertainty had seen investors in Asia head for the safety of the dollar .DXY and U.S. Treasuries US10YT=RR , which both moved to two-week highs.

Europe's bond markets saw similar moves, though the inkling that more moves are coming from the ECB helped lower-rated Italian and Spanish debt keep up with traditional safe-haven favourite German Bunds. DE10YT=TWEB Href="NewsSearch">GVD/EUR

Japanese stocks had skidded in Tokyo, with the Nikkei

.N225 down 0.4 percent although MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS managed to eke out small gains on a rebound in Chinese shares.

After its recent falls the yuan CNH= saw a second day of relative calm, standing at 6.1300 per dollar CNY= , just off Wednesday's low of 6.1351.

Dealers suspect the People's Bank of China has engineered the recent decline in its currency to inject more two-way volatility into the market and wrong-foot speculators who had amassed huge positions wagering on its continued rise.

"It's possible that the Chinese authorities think they need a weaker yuan now to bolster the economy," said Hirokazu Yuihama, senior strategist at Daiwa Securities.

FED FOCUS

Early futures prices pointed to slender gains for Wall Street later after it failed to build on recent record highs on Wednesday. Href="NewsSearch">.N

The markets may also be cautious ahead of testimony from Federal Reserve Chair Janet Yellen, who is bound to face questions on the recent spate of soft U.S. economic news and what it might mean for policy.

If the view is that the recent icy weather is to blame, investors are likely to expect the Fed to keep trimming its bond-buying programme by $10 billion at each policy meeting and end it completely by the end of the year.

"Given U.S. debt yields fell and that U.S. shares were steady to softer, the dollar's strength should be regarded as a reflection of risk aversion rather than rising confidence in the U.S. economy," said Masafumi Yamamoto, chief strategist at Praevidentia Strategy.

Turkey, one of the countries hardest-hit by the recent emerging market volatility, saw its lira slipping to three-week lows TRY= , dented also by a corruption scandal embroiling Prime Minister Tayyip Erdogan's government.

Brazil's central bank raised its benchmark interest rate on Wednesday to 10.75 percent from 10.50 percent as expected.

Among commodities, copper CMCU3 dropped to a three-month low below $7,000 a tonne, extending its losses over the past week on concerns about slower growth in China.

Oil LCOc1 edged lower, while gold stepped back after hitting a four-month high on Wednesday as the dollar strengthened broadly. It last stood at $1,329.30 an ounce

XAU= , off Wednesday's high of $1,345.35.

(Additional reporting by Hideyuki Sano in Tokyo; Editing by Hugh Lawson)

((marc.jones@thomsonreuters.com)(+44)(0)(207 542 9033)(Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net))

 
((To read Reuters Global Investing Blog click on  
http://blogs.reuters.com/globalinvesting;  
for the Macro Scope Blog click on  
http://blogs.reuters.com/macroscope;  
for Hedge Fund Blog Hub  
click on http://blogs.reuters.com/hedgehub) 
((For the state of play of Asian stock markets please click on:   ))

Keywords: MARKETS GLOBAL/