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World markets were set for another tumultuous week after Western nations announced a harsh set of sanctions to punish Russia for its invasion of Ukraine and as fighting intensified for a fourth day.

U.S. stocks have fallen nearly 8% so far this year, on track for the worst annual start since 2009, and worries over the intensifying conflict in Ukraine has shaken markets across the world.

Though Wall Street ended higher on Friday with major indices up between 1.5%-2.5%, analysts expected markets to come under selling pressure on Monday.

"Nobody likes uncertainty, investors certainly dislike uncertainty and we are looking at a pretty protracted conflict," said Peter Kinsella, global head of FX strategy at UBP.

"It seems to me we are in the opening stages of a new Cold War, that is pretty clear and that will weigh on sentiment for a long time."

Russian military vehicles pushed into Ukraine's second-largest city on Sunday and explosions rocked oil and gas installations on a fourth day of the biggest assault on a European state since World War Two. read more

In response, the United States and its allies moved to block certain Russian banks' access to the SWIFT international payment system. The measures also include restrictions on the Russian central bank's international reserves and will be implemented in the coming days. [PnL8N2V117C]

"Friday's bounce looked like a genuine short squeeze but Monday should bring some fresh selling pressure as the SWIFT sanctions and the growing likelihood of freezing Russian currency reserves will inflict some real financial pain across markets," said John Marley, CEO of forexxtra, a London-based FX consultancy.

The Russian invasion comes at a time when investors are already worried about expensive market valuations and hawkish central banks with world stocks (.MIWO00000PUS) falling to a 10-month low on Thursday and down more than 7% so far this year.

DIALING DOWN RISK

The latest developments could also put fresh pressure on energy and grain prices, with Brent futures having topped $105 per barrel and wheat futures scaling to levels last seen in mid-2008 on Thursday before easing back somewhat on Friday. read more

Latest weekly positioning data indicates investors frantically trying to dial down risk in their portfolios.

Hedge funds cut long bets on the British pound while yen short positions were slashed, according to data from Commodity Futures Trading Commission. Separate data from Goldman Sachs showed outflows from European-focused equity funds while flows into developed market equities fell into negative territory.

Safe-haven assets will be in demand with U.S. Treasuries, German Bunds and the Swiss franc likely to see heavy buying as traders digest the implications of the latest round of sanctions.

Russia's main stock index (.IMOEX) closed up 20% on Friday after Thursday's record 33% drop while the rouble recovered somewhat after falling to a record low on Thursday at 90 per dollar with analysts expecting more pain on Monday.

"There is increased risk of a Russian debt default, last seen in 1998, as a result of weekend announcements," said Ray Attrill, head of FX strategy at National Australia Bank.

Volatility gauges across markets (.VIX), (.MOVE), (.DBCVIX), already at elevated levels, are expected to shoot higher on Monday while investor buying of derivative contracts to protect themselves against further losses are likely to surge. (reuters)

North Korea fired what could be a ballistic missile on Sunday, military officials in South Korea and Japan said, in what would be the first test since the nuclear-armed country conducted a record number of launches in January.

South Korea's Joint Chiefs of Staff reported that North Korea had fired a suspected ballistic missile toward the sea off its east coast from a location near Sunan, where Pyongyang's international airport is located.

The airport has been the site of missile tests, including a pair of short-range ballistic missiles fired on Jan. 16.

Sunday's missile flew around to a maximum altitude of around 620 km (390 miles), to a range of 300 km (190 miles), JCS said.

Analysts said the flight data didn't closely match earlier tests, and suggested it could be a medium-range ballistic missile fired on a "lofted" trajectory.

"There have been frequent launches since the start of the year, and North Korea is continuing to rapidly develop ballistic missile technology," Japan's Defense Minister Nobuo Kishi said in a televised statement. North Korea was threatening the security of Japan, the region and the international community, he said.

The United States condemned the latest launch and called on North Korea to cease destabilising acts, but said the test did not pose an immediate threat, said the U.S. military's Indo-Pacific Command.

North Korea's last test was on Jan. 30, when it fired a Hwasong-12 intermediate range ballistic missile.

The largest weapon test-fired since 2017, the Hwasong-12 was reported to have flown to an altitude of about 2,000 km (1,200 miles) and range of 800 km (500 miles). That capped a record month of mostly short-range missile launches in January.

LAUNCH AMID S.KOREA ELECTION, 'PUTIN'S WAR'

Sunday's launch came less than two weeks ahead of South Korea's March 9 presidential election, amid fears by some in Seoul and Tokyo that Pyongyang may push ahead with missile development while international attention is focused on Russia's invasion of Ukraine.

"This launch comes as the international community is responding to the Russian invasion of Ukraine, and if North Korea is making use of that situation, it is something we cannot tolerate," Kishi said.

South Korea's National Security Council convened an emergency meeting to discuss the launch, which it called "regrettable", according to a statement from the presidential Blue House.

"Launching a ballistic missile at a time when the world is making efforts to resolve the Ukraine war is never desirable for peace and stability in the world, the region, and on the Korean Peninsula," the statement said.

The leading conservative candidate, Yoon Suk-Yeol, warned last week that North Korea could see the Ukraine crisis as "an opportunity for launching its own provocation."

Candidates and analysts have noted, however, that even before the invasion North Korean leader Kim Jong Un was overseeing an increase in missile tests as talks with the United States and its allies remain stalled.

"Putin’s War shapes almost all geopolitics right now, and should factor somewhere in Kim’s calculus — but even 'taking advantage of distraction' seems to presume too much, since (North Korea) was already testing aggressively before the war," John Delury, a professor at South Korea's Yonsei University, said on Twitter.

OLYMPIC LULL IN TESTING

China's representative on the Korean Peninsula, Liu Xiaoming, said on Sunday he spoke by phone with his U.S. counterpart, Sung Kim, and urged the United States to address North Korea's legitimate and reasonable concerns with greater attention, so as to create conditions for restarting dialogue.

"I pointed out that, under current situation, relevant parties should be cautious in words and actions, avoid stimulating each other, so as to prevent escalation of tension on the Korean Peninsula," Liu said on Twitter, without specifying when the phone conversation took place and without mentioning the latest test.

North Korea, which has close ties to China, did not test any missiles during the Beijing Olympics in February. The 2022 Winter Paralympics begin in Beijing on Friday.

Complaining of unrelenting "hostile policies" from the United States, North Korea has suggested it could resume testing its longer-range missiles or even nuclear weapons.

Pyongyang has an ambitious schedule of military modernisation, and the Kim regime’s strength and legitimacy have become tied to testing ever-better missiles, said Leif-Eric Easley, a professor at Ewha University in Seoul.

"North Korea is not going to do anyone the favour of staying quiet while the world deals with Russia’s aggression against Ukraine," he said.

Washington says it is open to talks with North Korea without preconditions, but Pyongyang has so far rejected those overtures as insincere.

North Korea's ballistic missile launches are banned by United Nations Security Council resolutions, which have imposed sanctions on the country over its missile and nuclear weapons programmes.

In its first comments since Russia's Thursday invasion of Ukraine, North Korea's foreign ministry on Saturday posted a statement by a researcher calling the United States the "root cause" of the European crisis for pursuing unilateral sanctions and pressure while disregarding Russia's legitimate demands for its security. (reuters)