European shares fell yesterday after a brisk two-week rally, hurt by a ratcheting-up of tensions in Ukraine, although traders said a dovish tone in a speech by US Federal Reserve Chair Janet Yellen limited losses.

Souring the mood, Ukraine declared that Russia had launched a “direct invasion” of its territory after Moscow sent a convoy of aid trucks across the border into eastern Ukraine where pro-Russian rebels are fighting government forces.

European indexes are halted by big resistance levels. At this point, investors should think about hedging their portfolios

But the FTSEurofirst, which fell as much as 0.7 per cent in a choppy day of trade, managed to recover some of its poise to end the session down 0.3 per cent at 1,351.38 points.

In a defence of her policy approach, Yellen, at a central banking conference in Jackson Hole, Wyoming, said that US job markets remain hampered by the effects of the Great Recession and the Fed should move cautiously in determining when interest rates should rise.

It was these comments that were behind a brief spike by the market into positive territory, traders said.

“Yellen’s speech showed she’s still unsure about some of the data we’re getting, and as a result she could hold off from raising rates,” Central Markets trading analyst Joe Neighbour said.

Despite yesterday’s overall weakness, the FTSEurofirst recorded its biggest weekly gain in six months – up 2.1 per cent.

The index has risen more than four per cent since a low hit two weeks ago, regaining ground following a sell-off triggered in June by the worries over the crisis in Ukraine.

But even after the sharp two-week rally, the index is still down more than three per cent from the five-and-ahalf-year high hit in June.

“European indexes are halted by big resistance levels. At this point, investors should think about hedging their portfolios,” Aurel BGC chartist Gerard Sagnier said.

The eurozone’s blue-chip Euro STOXX 50 index was down 0.8 per cent at 3,098.50 points. In the first minutes of trading, the index tested a key resistance level representing its 200-day moving average, before falling back.

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