Wall Street falters as Ukraine war drags on

LONDON — Wall Street ended a downbeat week with further losses on Friday as traders braced for continued economic fallout from Russia's invasion of Ukraine. They were also cautious, keeping in mind a looming Federal Reserve rate hike, though European indices saw gains.

Oil also rose on Iran supply fears, but remained well below the 14-year peak of near $140 hit on Monday brought on by worries of disruptions to supply from Russia, a major producer.

The pound and yen hit multiyear dollar lows before regaining some ground, as traders prepared for the Federal Reserve to most likely hike interest rates next week for the first time since the pandemic, in the first of several moves this year to fight inflation.

While equities rose after Putin said his negotiators had reported "certain positive shifts" in talks with Ukraine, the enthusiasm petered out in New York trading as Washington and Brussels announced new sanctions against Russia and fighting continued.

The Nasdaq closed more than two per cent lower and the S&P 500 fell more than one per cent.

"This gullible market — or some indubitable algorithms — seems willing to take Putin's words as the makings perhaps of an exit path," said Briefing.com analyst Patrick O'Hare.

In Europe, London ended with a gain of 0.8 per cent, Paris rose by 0.9 per cent and Frankfurt climbed 1.4 per cent to post their first weekly rise since the war.

Sentiment there was also brightened by data showing the UK economy rebounded 0.8 per cent in January after a 0.2-per cent decline in December, as Omicron coronavirus curbs were lifted.

Markets have been rocked ever since Russia shocked the world by invading its neighbour on February 24.

Michael Hewson, chief market analyst at CMC Markets UK warned that "any deterioration in sentiment over the weekend could see these gains reversed in a heartbeat if Russia chooses to escalate further, as well as potentially crossing the red line of chemical, or biological weapons use". 

Oil jumped on Friday after the European Union revealed talks it is chairing about the revival of the 2015 nuclear accord with crude producer Iran must be paused, days after fresh demands from Russia complicated negotiations.

Oil has been extremely volatile ever since Moscow's invasion, with traders still fretting over Western moves to ban Russian crude.

"It's been a rollercoaster ride for oil this week, and for some, the weekend cannot come quick enough," said Stephen Innes, Managing Partner at SPI Asset Management.

Crude prices have pulled back from nearly $140 at the peak on Monday to around $110 on Friday as hopes rose that other producers will step up production.

"This optimism needs to be tempered by the fact that any increase in output from OPEC would not be enough to offset the loss of Russian supply," said Hewson at CMC Markets.