By Hideyuki Sano
TOKYO (Reuters) - Asian shares began the week on a cautious note on Monday as investors braced for an escalation in East-West tensions after pro-Moscow rebels declared victory in a referendum on self-rule in eastern Ukraine.
Organizers of the weekend referendum said nearly 90 percent had voted in favor, possibly opening the way for the region to break away from Kiev in a conflict increasingly out of control.
Western leaders, faced with Russian assertiveness not seen since the Cold War, have threatened more sanctions in the key areas of energy, financial services and engineering if Moscow disrupts a presidential election planned in Ukraine on May 25.
The reaction in markets have been muted so far, with U.S. stock futures edging up 0.2 percent and U.S. bond futures down slightly in early trade.
But the latest developments gave investors little reason to plough into riskier assets.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 percent while Japan's Nikkei share average also ticked up 0.1 percent.
"Given a dearth of trading factors today, markets will pay attention to how Kiev and Moscow will react to the results of referendum," said Masafumi Yamamoto, chief strategist at Praevidentia Strategy.
"There could be military intervention by Russia, or more armed operations by Ukraine and the West could impose more sanctions on Russia. These could lead to fall in U.S. bond yields and the dollar/yen," he added.
U.S. Treasuries were slightly weaker, with the June 10-year T-note futures prices falling 2.5/32.
The yen was little changed with the dollar trading at 101.84 yen, having found support at around 101.40 last week.
One of the early movers were precious metals, with gold extending last week's loss to drop 0.7 percent to $1,280.20 per ounce.
Despite the simmering geopolitical concerns, global shares rallied last week, with the Dow Jones Industrial average posting a record closing high on Friday. European shares also hit six-year high.
One of the driving forces for these stock markets is the prospects of continued policy support from their central banks.
Dovish comments from Fed Chair Janet Yellen last week underpinned risk assets around the globe, including many emerging market currencies.
European Central Bank President Mario Draghi also warned on Thursday that the euro's strength was a serious concern and that the ECB was comfortable with taking more action to support economic growth.
The euro has been on the defensive since then, and last traded at $1.3758, not far off from the one-month low of $1.3745 hit on Friday.
There is little in the way of major economic releases on Monday. On Tuesday, industrial production, retail sales in China and U.S. retail sales will be closely watched.
(Editing by Shri Navaratnam)
