Shares down on Russia sanctions, weak housing; dollar pauses

LONDON (Reuters) - World stock markets fell on Monday as new European sanctions against Moscow chilled the already frosty relationship with Russia while the dollar hovered near six-month highs against a basket of major currencies.

U.S. stocks opened lower after data showed contracts to buy previously-owned U.S. homes fell unexpectedly in June, casting a cloud over the housing market recovery.

U.S. Treasuries yields fell to session lows with the benchmark 10-year notes yield at 2.47 percent.

"Housing has lost some of its mojo," said Ryan Sweet, senior economist at Moody's Analytics at West Chester, Pennsylvania.

"If housing doesn't re-accelerate, the economy won't grow faster. Our economy doesn't do well if housing doesn't do well. The Fed will likely be cautious in its outlook on housing.?

Investors were reluctant to make big bets ahead of data and events this week that include closely watched jobs and GDP data, a Federal Reserve meeting and $93 billion in new coupon-bearing debt.

MSCI's All-World Index was down 0.3 percent.

On Wall Street, the Dow Jones industrial average fell 76.65 points or 0.45 percent, to 16,883.92. The S&P 500 lost 10.59 points or 0.54 percent, to 1,967.75 and the Nasdaq Composite dropped 34.55 points or 0.78 percent, to 4,415.02.

Russian markets tumbled for a third straight session after the European Union reached an outline agreement on its first economic sanctions on Russia since the downing of a Malaysian airliner. German finance minister Wolfgang Schaeuble said the "top priority" was peace rather than economic interests.

Russia warned the moves would hamper cooperation and undermine the fight against terrorism, although Foreign Minister Sergei Lavrov said that Moscow would not impose tit-for-tat measures.

Moscow's dollar-denominated RTS index slumped 2.5 percent in response, its rouble-traded peer MICEX fell 1.8 percent and the rouble dropped over half a percent against both the dollar and the euro.

"We have seen Germany stepping up rhetoric on tougher sanctions on Russia," said Vasileios Gkionakis, Global Head of FX Strategy for UniCredit in London. "Saying stability and peace is the top priority rather than economic interests are strong words."

The dollar index was marginally lower at 81.000, after it peaked at 81.084 on Friday, a high not seen since early February. So far this month, it has rallied around 1.6 percent, on track for its best monthly gain since January.

Brent crude slipped towards $107 a barrel as ample supply in the Atlantic basin and weak demand in Europe and Asia outweighed worries over Ukraine and the Middle East.

September Brent was down $1.20 at $107.19 a barrel while U.S. crude futures for September dropped 80 cents to $101.29, after ending last week 1 percent lower.

(Additional reporting by Richard Leong in New York; Editing by Nick Zieminski)