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Ukraine worry sparks fall in stocks, bond yields

By Chuck Mikolajczak

New York (Reuters) - U.S. stocks and bond yields fell on Tuesday after a report indicating escalating tensions in Ukraine sparked fresh concern about the region.

Wall Street stocks extended losses after a Bloomberg report that cited comments from the Polish foreign minister, Radoslaw Sikorski, who said Russian units were set to pressure or invade Ukraine.

Each of the 10 major S&P sectors closed in negative territory, with energy <.SPNY> the worst-performing group, down more than 2 percent. But the S&P 500 <.SPX> managed to pare its losses enough by the closing bell to hold right at the 1,920 support level.

The benchmark index has now declined 3.4 percent from its most recent record high on July 24.

Bonds reversed course on the Russia-Ukraine report, with yields on the 10-year note <.US10YT=RR> touching a session low of 2.47 percent. The benchmark 10-year U.S. Treasury was up 2/32, its yield at 2.4853 percent.

"It got to the point where it was just too frothy and you saw it coming and things needed to cool down," said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco.

"It was clearly the Russian thing, the Ukrainian thing. Those are rather bellicose comments from Poland so I can see where that got people a little scared."

U.S. stocks started the session in negative territory after weak economic data out of China, where the HSBC/Markit services PMI fell in July to its lowest since November 2005, suggesting a recovery in the world's second-largest economy may need further government support.

The dollar hit its highest level against a basket of currencies <.DXY> since September 2013 and was up 0.2 percent at 81.51 after the Institute for Supply Management said service-sector growth in the United States hit an eight-and-a-half-year peak in July on strong growth in new orders and employment.

U.S. factory orders were also strong in July and data showed positive revisions to durable goods orders, a sign that the economy continues to improve. The euro fell to the day's low of $1.3357 after the U.S. data and was last down 0.4 percent at $1.3375, while the dollar hit a high of 102.92 against the yen, before losing steam to pull back 102.54.

The Dow Jones industrial average <.DJI> fell 139.81 points, or 0.84 percent, to close at 16,429.47, the S&P 500 <.SPX> lost 18.78 points, or 0.97 percent, to 1,920.21 and the Nasdaq Composite <.IXIC> dropped 31.05 points, or 0.71 percent, to 4,352.84.

The MSCI All-World Index <.MIWD00000PUS> fell 0.7 percent.

European PMI figures showed the continent's economy was growing, as expected. But manufacturing remained weak and kept intact expectations the European Central Bank will ease monetary policy further, pressuring the euro.

European stocks were able to edge higher as investors cheered forecast-beating results from German luxury carmaker BMW and France's third-biggest listed bank, Credit Agricole , among others.

The pan-European FTSEurofirst 300 index <.FTEU3> of leading shares gained 0.3 percent, a small recovery from its nearly 4 percent fall over the past two weeks on concerns over financial uncertainty about Portugal's Banco Espirito Santo , which was later bailed out.

In commodities markets, Brent crude slipped below $105 a barrel, to settle down 80 cents at $104.61, as ample supplies outweighed Middle East turmoil, while U.S. crude settled down 91 cents to $97.38. [O/R]

(Reporting by Chuck Mikolajczak; Additional reporting by Daniel Bases; Editing by Dan Grebler and Leslie Adler)

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