 "Global shares take a beating on Ukraine tensions")
Towns in eastern Ukraine were readying for military action from government forces after Kiev gave pro-Russian separatists a 9 am (0600 GMT) deadline to disarm and end their occupation.
As the deadline passed, a Reuters reporter in the flashpoint city of Slaviansk, where armed men had seized two government buildings, said there was no outward sign the rebels were complying with the ultimatum.
For financial markets it was yet more uncertainty. Asian markets had continued to cede ground overnight and Europe followed suit with the pan-regional FTSEurofirst 300 down 0.4% in early trading.
A flurry of M&A activity, including a $6 billion copper mine sale from Glencore Xstrata, helped limit the falls. Germany's Dax, with some of biggest links to Russia, led the drop as it fell 0.7% to a three-week low.
"The escalation sharply increases risks of an all-out civil war in Ukraine," said Bank of America Merrill Lynch analysts in a research note.
"Even though it is still not our baseline scenario, the entire development is clearly negative for the market (and raises) renewed fears of another wave of sanctions from the West."
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Russian markets also tumbled. The rouble and Moscow's main stock market were both down around 1%, while the country's key bonds hovered cautiously as the cost of insurance against default rose.
European Union foreign ministers will hold talks later on Monday about tougher sanctions against Russia.
PLAYING SAFE
The low-yielding yen benefited from the heightened risk aversion. The dollar was nudged down to 101.59 yen, after touching a 3-1/2-week low of 101.32 yen on Friday, a far cry from a 2-1/2-month high of 104.13 yen set on April 4.
The euro meanwhile retreated modestly after more strong talk from the European Central Bank that it will take action to head off further gains in the shared currency.
In Europe, German government bonds were the big beneficiaries of the uncertainty and the ECB talk, with Bund yields dipping to a 10-month low.
S&P 500 e-mini futures pointed to a steadier start to for Wall Street later, however, after last week's turbulence. It had seen the tech and biostock-dominated Nasdaq take its biggest tumble since mid 2012 as it fell over 3%.
Among commodities, spot gold XAU benefited from the move towards safe-haven assets, adding about 0.6% to $1,327.10 an ounce, after earlier marking a new three-week high.