European shares fell yesterday as fighting erupted in eastern Ukraine, the first major eruption of violence there since a Malaysian airliner was shot down last week.

Calls are multiplying in the West for new sanctions against Moscow over last week’s downing of the Malaysia Airlines flight over eastern Ukraine, widely blamed on pro-Russian separatists. Russia challenged the accusations yesterday.

“The market is really worried about the enormity of the situation in Ukraine and, without even going into the sanctions, the rhetoric that escalates,” Ashraf Laidi, chief global strategist at City Index, said.

“The market is going to be jittery ahead of the follow-up sanctions from the West as well as any reaction from Russia (and) may use it as an excuse for sell off.”

The pan-European FTS-Eurofirst 300 closed 0.5 per cent lower at 1,355.84 points. The eurozone Euro STOXX 50 fell 0.9 per cent to 3,137.06 points.

The five-month conflict in Ukraine has added to concerns for European exporters already struggling with unfavourable currency fluctuations.

Peugeot's shares dropped 3.7 per cent after it said deliveries fell 25.8 per cent in Russia, 26.8 per cent in Latin America and 37.2 per cent in Africa and the Middle East.

Shares in Fiat and Renault each shed over one per cent despite encouraging sales figures from Europe's peripheral markets, leaving the Stoxx 600 auto and parts index down 1.1 per cent.

Investors were positioning for some weak emerging-market figures when automakers report quarterly numbers over the next few weeks.

“There are so many weak spots in the global (auto) markets, and the deterioration in Russia has contributed to the negative sentiment,” Juergen Pieper, an auto analyst at Metzler Equities, said. “(The auto sector) needs quite a convincing quarter to change the trend.”

While eurozone blue-chip companies get only 0.3 per cent of their revenues from eastern Europe, Russia is a key provider of energy to many western European countries, notably Germany and Italy.

Jeremy Batstone-Carr, analyst at Charles Stanley, said that concerns over retaliatory moves by Russia, included the possibility that they might switch off gas taps to Europe, made European investors especially nervous.

Elsewhere, Israel showing no signs of scaling back its assault on Gaza, and the potential impact on tourism of instability in parts of eastern Europe and the Middle East hit the travel and leisure sector, which fell one per cent.

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