Updated March 3, 2014 3:07 p.m. ET
The escalating Ukraine crisis rocked global financial markets Monday, driving up oil prices significantly, sending investors rushing into perceived safe-haven assets such as the yen, and prompting a widespread selloff of stocks.
Europe's bourses ended the day down around 2%, and those countries-such as Germany-with closer economic ties to Russia suffered most. The benchmark German DAX fell 3.4%. In midafternoon trading in New York, the Dow Jones Industrial Average was off 0.9% at 16173, recovering some ground from its midday lows. The S&P 500 was down 0.7%.
But the brunt of the market pain was borne by Russia, which stepped up its military activity in Ukraine's Crimea region. The gathering unrest caused investors to take money out of Russia, and the Russian ruble plummeted to a record low against the dollar and euro. The Bank of Russia tried to quell the flight early Monday by raising interest rates, but it was only partly successful. The benchmark Micex stock index ended down 11%, with construction firm Mostotrest OAO and metals and mining company Mechel OAO leading the falls, both dropping more than 20%. Gazprom, which has a large weighting on the index, was down 14%, and Sberbank was off 15%.
Related Video
Russia has taken advantage of the new, weak government in Kiev by swiftly moving its troops into the Ukrainian province of Crimea. James Marson explains the events that led to this standoff.
Ukraine Prime Minister Arseniy Yatsenyuk urged Russian President Vladimir Putin to pull his troops out of Crimea saying, "we are on the brink of disaster." Photo: Getty Images
Supporters of Ukraine's new government and pro-Russian demonstrators rallied separately in the eastern Ukrainian city of Donetsk, while thousands gathered in Kiev calling for unity in the country. Photo: Getty Images
Crisis in Ukraine: In the Markets
"The first risks investors are getting out of are Ukrainian and Russian risks," said Paul Lambert, head of currencies at Insight Investment in London, which manages around $450 billion of assets.
The political and strategic crisis is coming at a difficult time for Russia's economy. Data released Monday showed the country's manufacturing sector contracted for the fourth straight month. The rate hike is likely to restrain economy activity even further.
In Ukraine, the yield on the country's 10-year dollar-denominated bond was at 10.33%, having earlier leapt more than a percentage point from Friday's close to 10.53%. The yield on the dollar-denominated Ukrainian bond maturing in 2014 meanwhile surged by 17 percentage points to 43%, according to Tradeweb. Bond prices and yields move in opposite directions.
Ukraine's currency, the hryvnia remains extremely weak and was most recently quoted at 10 against the dollar, around 22% weaker than where it started the year.
"This uncertainty isn't likely to dissipate soon," said Rob Drijkoningen, co-head of emerging-market debt at Neuberger Berman.
"Ukraine faces some important economic problems—lack of growth, an overvalued currency, and dwindling foreign-exchange reserves—but, given the latest developments, the new government's attention has been focused on dealing with Russia rather than fixing imbalances," he added.
Mr. Drijkoningen owns fewer Ukrainian bonds relative to their weight in bond benchmarks. He has also bet against the Russian ruble, and he increased that bet last week.
Emerging markets, which have already had a rough year, were hit again Monday. Poland's main stock market fell 5.2%%, while its currency, the Polish zloty, fell to a three-week low against the euro of 4.2001 after notching up losses of 0.9%.
In European government bond markets, the yield on the benchmark 10-year German Bund fell 0.04 percentage point to 1.58% while the yield on the corresponding U.K. gilt eased 0.06 percentage point to 2.66%.
"The escalation of Ukraine crisis—with reports that Russia may have invaded Crimea—represents a major shock to sentiment toward risky assets," said Benoit Anne, head of emerging market strategy at Société Générale in London.
The fallout was also felt in other European stock markets Monday, with while France's CAC 40 falling 2.5% and the U.K.'s FTSE 100 ending 1.9% lower.
European companies with exposure to Russia in particular came under pressure Monday.
Of the companies that generate at least 25% of revenue from Russia, Oriflame Cosmetics SA ORI-SDB.SK -6.57% Oriflame Cosmetics S.A. Sweden: Stockholm kr152.20 -10.70 -6.57% March 3, 2014 5:29 pm Volume : 794,487 P/E Ratio 12.49 Market Cap kr8.81 Billion Dividend Yield 5.81% Rev. per Employee kr1,629,920 More quote details and news » ORI-SDB.SK in 
Your Value Your Change Short position dropped 5.5%, Nokian Renkaat Oyj NRE1V.HE -6.62% Nokian Renkaat Oyj Finland: Helsinki €30.35 -2.15 -6.62% March 3, 2014 6:29 pm Volume : 2.01M P/E Ratio 21.99 Market Cap €4.33 Billion Dividend Yield 4.78% Rev. per Employee €376,578 More quote details and news » NRE1V.HE in Your Value Your Change Short position fell 6.6%, Carlsberg CARL-A.KO -5.10% Carlsberg A/S Series A Denmark: OMX DKK568.00 -30.50 -5.10% March 3, 2014 4:52 pm Volume : 2,989 P/E Ratio 15.82 Market Cap DKK87.98 Billion Dividend Yield 1.06% Rev. per Employee DKK1,595,670 02/26/14 AB InBev Posts Surge in Net Pr... 02/19/14 Carlsberg to Sharpen Focus on ... 01/13/14 German Breweries Fined in Pric... More quote details and news » CARL-A.KO in Your Value Your Change Short position was down 6.2% and Fortum Oyj FUM1V.HE -3.15% Fortum Oyj Finland: Helsinki €16.62 -0.54 -3.15% March 3, 2014 6:30 pm Volume : 3.70M P/E Ratio 12.31 Market Cap €15.24 Billion Dividend Yield 6.62% Rev. per Employee €583,936 More quote details and news » FUM1V.HE in Your Value Your Change Short position 2.5%. German retailer Metro AG MEO.XE -5.44% Metro AG Germany: Xetra €28.41 -1.64 -5.44% March 3, 2014 5:35 pm Volume : 4.41M P/E Ratio 74.76 Market Cap €9.80 Billion Dividend Yield 3.52% Rev. per Employee €221,689 03/03/14 Metro Monitors Markets Ahead o... 02/11/14 Metro Outlook Cautious On Stro... 01/13/14 Metro First-Quarter Sales Fall More quote details and news » MEO.XE in Your Value Your Change Short position , whose cash-and-carry operations in Russia had been one of the company's largest growth drivers, also dropped 7.1%.
In London, Ferrexpo, FXPO.LN -7.58% Ferrexpo PLC U.K.: London GBp141.40 -11.60 -7.58% March 3, 2014 4:35 pm Volume : 5.86M P/E Ratio 0.07 Market Cap GBp900.59 Million Dividend Yield 3.06% Rev. per Employee GBp98,048.2 More quote details and news » FXPO.LN in Your Value Your Change Short position an iron-ore company with assets in Ukraine, tumbled 15% while Evraz, EVR.LN -12.71% Evraz PLC U.K.: London GBp61.15 -8.90 -12.71% March 3, 2014 4:35 pm Volume : 5.78M P/E Ratio N/A Market Cap GBp1.06 Billion Dividend Yield N/A Rev. per Employee GBp83,599.9 More quote details and news » EVR.LN in Your Value Your Change Short position which has operations in the Russian Federation and Ukraine, fell 10%.
Russia's incursion into the Ukrainian peninsula of Crimea has stoked worries about the region's stability, sending money managers into safer investments that historically benefit during bouts of political and economic turbulence. Ukrainian Prime Minister Arseniy Yatsenyuk on Sunday said that his country was "on the brink of disaster" and personally blamed Russian President Vladimir Putin for bringing the two nations to the verge of war.
The Japanese yen, often perceived as a traditional safe-haven in times of political uncertainty, surged to a near one-month high against the U.S. dollar Monday.
In commodity markets, Brent crude-oil surged 2.5% to its highest price this year, as Russia is one of the world's largest producers of oil and traders worry supply may be disrupted if the Ukraine conflict escalates further. Meanwhile gold, which is often seen as a safe retreat in times of financial market stress, was up 1.3%.
That said, Insight's Mr. Lambert said the moves so far seen Monday have been relatively well contained.
"The market is very complacent here about the potential environment we could be facing going forward from this situation."
"If you take a member of G-8 that is as significant as Russia and you went to a situation where there are sanctions and the supply of energy to Europe is restricted, there is a much more tense political environment which needs to be priced in. This morning's moves are a very small part of that process, it could be a lot worse," he added.
—Neelabh Chaturvedi, Mia Lamar, Chris Dieterich, Rebecca Howard and Andrey Ostroukh contributed to this article.
Write to Clare Connaghan at clare.connaghan@wsj.com
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