By Chuck Mikolajczak
NEW YORK (Reuters) - Global equity markets fell on Thursday and safe-haven U.S. and German government bonds rose on fears over Russia and Ukraine and in response to underwhelming U.S. and European economic data.
Slovak Prime Minister Robert Fico said Russia's Vladimir Putin told multiple European states that Moscow will not supply gas to Europe as of June 1 if Ukraine does not pay its bills. Moscow and Kiev have taken tentative steps to resolve this dispute.
Natural gas futures rose 1.9 percent.
U.S. stocks lost 1 percent on continued weakness in small-caps. The Russell 2000 small-cap index was on pace for its third straight decline and was in correction territory, being down more than 10 percent from its record close earlier this year.
European stocks closed down 0.8 percent, erasing gains to a six-year peak hit after data showed the euro zone economy expanded slightly in the first three months of 2014 from the last quarter of 2013, boosting expectations of stimulus from the European Central Bank.
The MSCI world equity index also fell 0.75 percent. Bond prices in Spain, Italy and other peripheral European nations fell sharply.
Yields on benchmark 10-year U.S. Treasury notes fell as low as 2.47 percent, the lowest since Oct. 30. The U.S. bond market rallied in tandem with Europe's, bolstered by weak euro zone growth that further cemented expectations the ECB will lower rates in June.
"People are pouring into bonds because they don't believe the growth story in the U.S. is going to be very large," said Keith Bliss, senior vice-president at Cuttone & Co in New York. "If you don't believe the growth story you also have trouble staying with the valuations of equities at this point ... and then the external factors of global geopolitical intrigue that will hit the markets occasionally."
The Putin news and weak U.S. industrial production data and a fall in U.S. homebuilder sentiment stoked the safe-haven rally.
Also adding to investor skittishness were comments from billionaire hedge fund manager David Tepper who said he was "nervous" about the stock market at a conference on Wednesday but said this was not the time to sell.
The Dow Jones industrial average fell 171.46 points or 1.03 percent, to 16,442.51, the S&P 500 .SPX lost 17.66 points or 0.94 percent, to 1,870.87 and the Nasdaq Composite dropped 26.51 points or 0.65 percent, to 4,074.12.
U.S. crude oil settled down 87 cents at $101.50 a barrel, while Brent crude LCOc1 gained 25 cents to $110.44. O/R
ECB President Mario Draghi signaled last week the bank was poised to ease policy next month to support the euro zone economy. Federal Reserve Chair Janet Yellen has also suggested continued support for the U.S. economy.
The euro was flat at $1.3714 after hitting a low of $1.3647, while Germany's 10-year Bund yield DE10YT=RR hit its lowest in a year at 1.30 percent.
(Reporting by Chuck Mikolajczak; Editing by Dan Grebler and James Dalgleish)
