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Russia’s benchmark index sank 10.8 per cent Monday, with a falling currency causing the country to raise interest rates from 5.5 per cent to 7 per cent.Alexander Zemlianichenko/The Associated Press

Rising tensions in Ukraine sent global stocks tumbling as investors rushed to the perceived safety of U.S. bonds and gold, while fears of tighter supplies sent key commodity prices sharply higher.

Russia's benchmark index sank 10.8 per cent Monday as the country's forces secured their grip on Crimea. Germany's DAX index fell 3.4 per cent as European shares dropped, and the S&P 500 retreated 0.7 per cent, after hitting a record high on Friday.

Gold rose $28.70 (U.S.) an ounce to $1,350.30, and benchmark crude oil closed up more than $2 a barrel to about $105 as markets weighed the possibility sanctions against Russia would limit global supplies.

Russia's advances, along with Ukraine's deteriorating financial situation, triggered a wave of worry through global financial markets, which have rallied for months amid expectations of steady economic growth and little geopolitical strife. Now, however, investors are reconsidering their risk appetite, concerned the standoff in Ukraine could escalate.

"Until this Ukraine issue gets resolved, expect more of the same," said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, in a note. "More volatility. Profit-taking in risk assets."

The Ukrainian economy is small – the International Monetary Fund ranks it 54th in the world based on its 2012 gross domestic product, behind Peru and Algeria – but observers are growing increasingly concerned about the wider effects.

According to Commerzbank, European banks have a $184-billion (U.S.) exposure to Russia. As well, the European Union imports 22 per cent of its natural gas from Russia, much of it through pipelines that run through Ukraine. OAO Gazprom, the oil and gas company, was one of the hardest hit stocks in Russia, falling 19 per cent.

Faced with a tumbling currency, Russia suddenly raised interest rates to 7 per cent from 5.5 per cent.

In the United States, popular consumer stocks like McDonald's Corp. and PepsiCo Inc. also fell, reflecting concerns about the longer-term effect on global operations that extend into Russia.

"East/West relations seem sure to take a long-term downturn," Alastair Newton, senior political analyst at Nomura Holdings, said in a note.

Canadian stocks were steady, helped by higher gold and energy prices. Suncor Energy Inc. rose 0.3 per cent and Barrick Gold Corp. rose 0.8 per cent.

Gold prices hit a four-month high and wheat prices climbed 6 per cent as Russia took control of Ukrainian border posts in the peninsula of Crimea.

Commodities had already been on a roll this year amid a recalibration of global supply and demand. Now, the threat of war in the region is adding new strength to a menu of metals and other commodities, said Patricia Mohr, a commodity specialist with Bank of Nova Scotia.

Phil Flynn, futures account executive for Price Futures Group in Chicago, said the run-up in crude prices is being driven partly by fears that Russia could cut off supplies of natural gas to Europe, forcing a scramble for alternatives, including heating oil and diesel fuel, the so-called distillates manufactured from crude oil.

Russia in 2012 was the world's second-largest producer, according to the International Energy Agency.

"It's also going to disrupt to the flow of energy because Europe is going to be less likely to export diesel, which they have been doing to the United States at times, because they are going to need it for backup," Mr. Flynn said. "So there's this concern that you have to potentially replace this supply and the risk is high right now. This is really the crux of what's going on."

"Oil markets are reacting on the potential that the situation could worsen," said Ben Le Brun, a market analyst at OptionsXpress in Sydney, Australia. While he doesn't see any fundamental effect on the energy market yet, "I definitely suspect oil will move much higher, if it actually comes to war. U.S. crude could easily surpass $110, and a $120 target is not out of the question."

Wheat and corn rose in Chicago amid fears unrest in Ukraine and the Black Sea shipping zone would disrupt exports. Ukraine is the world's sixth biggest exporter of wheat and the third biggest shipper of corn.

"Ukraine being a major supplier of grain has cast some doubt in the global markets," said Chad Morganlander, a Florham Park, N.J.-based fund manager at Stifel Nicolaus & Co.

"If there is a risk that a tank appears in your field, you would think twice before you start sowing," a Moscow-based grain trader said on Monday.

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