By Patrick Graham
LONDON (Reuters) - European stock markets fell across the board on Monday, concerned by an escalation in tensions between Russia and the West and reports the Ukrainian army was moving on a major rebel stronghold.
The step up in rhetoric over Russia's involvement following last week's downing of a Malaysian airliner had offered hope for some investors that stronger action by Western powers could push the conflict toward a peaceful conclusion.
But reports that Ukrainian forces were moving into the eastern city of Donetsk added to concerns that the conflict in one of Europe's biggest countries instead may escalate further.
"The Ukraine situation has the potential to get ever worse," said Hantec Markets analyst Richard Perry, referring to the reports out of Donetsk at the start of European trading.
"Anyone who believes this step-up in rhetoric will lead to some kind of deescalation are being complacent."
European benchmarks, the FTSE 100, DAX and CAC 40 were all down by between 0.4 and 0.7 percent soon after opening.
The yen, traditionally a beneficiary of concerns over geopolitical risks for markets, was up 0.3 percent against the euro and around 0.1 percent against the dollar.
Asian markets - excluding Japan which was closed for a holiday - had gained 0.3 percent on the back of a strong finish for Wall Street on Friday on upbeat U.S. corporate earnings, with more reports due this week.
Germany and other European Union members have trodden a more cautious line on sanctions against Russia than the United States to date, mindful of the damage an exchange of sanctions with one of their main energy providers could do to Europe's economy.
Any escalation of sanctions would be liable to hurt businesses, with Germany and its strong trade ties with Moscow a particular concern.
"The proximity to the Ukraine crisis does cause European investors to be a bit more circumspect over the issues there, while Wall Street is more distant and seems to be able to push on regardless," said Jeremy Batstone-Carr, an analyst at Charles Stanley in London.
Shocks to the system from Ukraine and Israel's ground invasion of Gaza come at a time when markets have been digesting conflicting economic signals from either side of the Atlantic.
U.S. stock markets have been lifted by positive earnings news.
Thomson Reuters data showed that of 82 companies in the S&P 500 that had reported earnings through Friday morning, 68 percent beat Wall Street's expectations. That was roughly in line with the 67 percent average for the past four quarters and above the 63 percent average since 1994.
U.S. stocks rose on Friday and for the week as a whole the Dow Jones rose 0.9 percent, while the S&P 500 gained 0.5 percent and the Nasdaq added 0.4 percent.
In Europe, economic data has been mixed and troubles at Portugal's biggest bank have underlined worries that the rally in European shares may be overdone in the context of the decade of fiscal retrenchment still ahead for many countries.
U.S. 10-year yields were steady at 2.48 percent on Monday, while German bunds were yielding just 1.15 percent having neared all-time lows.
Crude oil prices were also knocked after enjoying a brief rally last week. Brent fell more than 30 cents to $106.90 a barrel as investors kept an eye on the crisis between Moscow and the West over last week's jet crash in Ukraine. U.S. crude fell 44 cents to $102.89 a barrel.
(Editing by Susan Fenton)