Portugal Colonial - Stocks nervous even after Russia sees 'chance' in Ukraine crisis

But prospects of the US Federal Reserve raising interest rates more aggressively than anticipated prevented markets from recouping even more lost ground.

On Wall Street, stock prices were mixed after intially opening flat, and European markets -- which had tumbled sharply earlier in the session -- came off their lows, but remained firmly in the red.

"Stock markets are getting pummelled... as investors prepare for a potential Russian invasion of Ukraine this week," said OANDA analyst, Craig Erlam.

"Reports since Friday suggest an invasion has gone from being a risk to highly likely and the late sell-off in the US followed by today's plunge reflects that."

Nevertheless, the markets experienced some momentary relief from comments by Russian Foreign Minister Sergei Lavrov, who told President Vladimir Putin that there was a "chance" of reaching an agreement on security with the West.

"The tone changed suddenly... following a headline that Russian Foreign Minister Lavrov said there is a chance for agreement on security issues," said Patrick O'Hare at Briefing.com.

"The fact that the door has not been shut to further talks... is a good thing," O'Hare said.

"Hence, the negativity seen earlier has dissipated some, yet there is still a major cloud of uncertainty hanging over the market."

Lavrov's comments "eased investor nerves over an 'imminent' invasion of Ukraine by Russia, something which Kremlin has continually denied," said ThinkMarkets analyst, Fawad Razaqzada.

Nevertheless, looking beyond the Ukraine crisis, inflation remained very much an "elephant in the room" for financial markets, the analyst cautioned.

"It is all about how central banks are going to address surging inflationary pressures around the world, not least the Federal Reserve."

Comments by a top US Federal Reserve official, suggesting the central bank needed to accelerate the pace of interest rate increases to fight inflation, threatened to dampen some of the nascent optimism.

"Our credibility is on the line here," St. Louis Fed President James Bullard said on CNBC.

After consumer prices saw their biggest jump in 40 years in January, he said the Fed should "front load" rate increases to rise by a full point by July.

- $100 oil? -

The Ukraine crisis is also being closely watched by the oil markets, amid a pick-up in crude demand as economies reopen after the coronavirus pandemic and people return to a more normal life.

Earlier in Asia, Brent had climbed as high as $96.16 and WTI crude to $94.94 per barrel, stoking renewed concern over elevated inflation.

But later in the session, prices had come back down again as investors took profit.

Europe has for months already suffered from soaring natural gas prices, which have fuelled rocketing domestic energy prices and sparked decades-high inflation.

"In the event of a Russia-Ukraine escalation we could be seeing a significant increase in domestic energy prices since much of Europe is heavily reliant on Russian oil and gas supplies," said XTB analyst Walid Koudmani.

- Key figures around 1640 GMT -

New York - Dow: DOWN 0.5 percent at 34,555.29 points

London - FTSE 100: DOWN 1.7 percent at 7,531.59 (close)

Frankfurt - DAX: DOWN 2.0 percent at 15,113.97(close)

Paris - CAC 40: DOWN 2.3 percent at 6,852.20 (close)

EURO STOXX 50: DOWN 2.2 percent at 4,064.45

Tokyo - Nikkei 225: DOWN 2.2 percent at 27,079.59 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 24,556.57 (close)

Shanghai - Composite: DOWN 1.0 percent at 3,428.88 (close)

Brent North Sea crude: UP 0.4 percent at $94.84 per barrel

West Texas Intermediate: UP 0.6 percent at $93.74 per barrel

Euro/dollar: DOWN at $1.1309 from $1.1350 late Friday

Pound/dollar: DOWN at $1.3515 from $1.3564

Euro/pound: DOWN at 83.67 pence from 83.68 pence

Dollar/yen: UP at 115.69 yen from 115.42 yen

burs-spm/kjm

P.L.Madureira--PC