By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- European markets turned lower after a
Russia's foreign minister said Moscow will defend the economy if it
comes up against another round of sanctions related to the conflict
in Ukraine.
Any new measures from the European Union or the United States
will force Russia to "protect our economy, protect our social
sphere, protect our businesses and at the same time draw
conclusions from the actions of our partners on their adequacy,"
Russian Foreign Minister Sergei Lavrov was quoted by Reuters as
saying Monday.
On Saturday, EU leaders agreed to draw up options for new
sanctions within a week if Russia doesn't pull back its
intervention in Ukraine. Read: Ukraine loses ground to rebels.
The comments came as Pro-Russian rebels and Ukrainian forces
were fighting near the Luhansk airport in eastern Ukraine on
Monday, according to the BBC, with the battles talking place before
new round of Russia-Ukraine talks was set to begin. Lavrov said
negotiators should prioritize an "immediate cease-fire" when they
meet in Minsk to talk about the months-long conflict. On Saturday,
Ukrainian President Petro Poroshenko said his country was moving
toward "a point of no return -- full-scale war" against Russia.
Market reaction: The Stoxx Europe 600 turned lower in
mid-morning trade, losing 0.1% to 341.52, with Germany's DAX 30
index down 0.3% at 9,445.96. German stocks in recent weeks have
felt the weight of worry among investors about the German economy
and the impact of sanctions on trading partner Russia.
Trading volumes in European markets were lighter than usual,
with close of trade in the U.S. for the Labor Day holiday.
Russia's blue-chip MICEX index was down 0.2% to 1,398, while the
Russian ruble reached a record low against the U.S. dollar,
according to The Wall Street Journal. The greenback (USDRUB) was
recently buying 37.4455 rubles, compared with 37.1605 rubles on
Friday.
France's CAC 40 index fell 0.4%, and the U.K.'s FTSE 100 was off
0.1%, with Tesco PLC shares extending losses after Friday's profit
warning.
Economic data: Germany also received downbeat, though expected,
confirmation that its economy shrank in the second quarter. Gross
domestic product contracted 0.2% on adjusted terms after growth of
0.7% in the first quarter, according to figures from government
agency Destatis.
Meanwhile, a report from Markit showed German factories in
August logged their most sluggish month since September 2013. The
figures were part of a headline measure that showed activity in the
euro zone's manufacturing sector fell to 50.7 from 51.8 in July.
The final activity reading was slightly lower than the preliminary
estimate of 50.8.
The euro (EURUSD) was little changed after the euro-zone
economic data, trading around $1.3136. But it was down from
Friday's level of around $1.3170.
Comments: "Russia's escalation of the conflict in Ukraine has
taken a toll on the internationally exposed manufacturing sector,
and that effect could yet worsen further in the coming months,
given recent confidence drops in the more directly exposed core
European economies," said Robert Wood, chief U.K. economist at
Berenberg, in note about a slowdown in the U.K. manufacturing
sector. Data from Markit/CIPS released Monday showed the sector
expanded at the slowest pace in 14 months in August.
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