GLOBAL MARKETS-Ukraine tensions knock stocks as dollar waits on Yellen

* Strong dollar steadies

* European shares wobble as Russia convey goes into Ukraine

* Investors await Yellen's, Draghi's speeches in Jackson

Hole

* Nikkei snaps 9-session winning streak

By Marc Jones

LONDON, Aug 22 (Reuters) - The high-flying dollar steadied

on Friday as markets waited for steers on U.S. monetary policy,

while escalating tensions over Ukraine halted a strong run-up by

European stocks.

Fears the conflict would worsen before next week's meeting

between Vladimir Putin and Ukraine President Petro Poroshenko

pushed up safe-haven assets, but was not enough to distract

markets from the main focus of when cheap and easy credit was

likely to come to an end.

U.S. Federal Reserve Chair Janet Yellen and European Central

Bank President Mario Draghi are both speaking later at the

annual gathering of central bankers in Jackson Hole, Wyoming.

Talk will focus on labour markets and economic prospects but

traders will be listening for any clues about the timing of U.S.

interest rate rises and how the ECB plans to tackle the euro

zone's growth and stubbornly-low inflation problems.

"Everyone expects Janet Yellen to make another speech that

the labour market isn't as rosy as the headline employment

numbers suggest," Aberdeen Asset Management (Other OTC: ABDNF - news) portfolio manager

Luke Bartholomew said.

"We are all set up for her to be dovish, so the surprise

would be if she wasn't."

With that uncertainty in mind, Wall Street was expected to

see a subdued restart and the dollar was hovering

just below its 2014 peak against a basket of major currencies.

European shares were heading for their biggest

weekly gain since February but dipped after a Russian convoy of

aid trucks entered eastern Ukraine without Kiev's permission.

News (Other OTC: NWSAL - news) the Red Cross was also not moving into Ukraine with the

Russian trucks as planned triggered stock

selling in London, Frankfurt and Paris.

Shares (Frankfurt: DI6.F - news) in Moscow tumbled over 2 percent to bring

this week's rally to an abrupt halt, and the rouble also

fell.

"The Ukraine headlines saw both the Swiss franc and the yen

rise, but gains have been relatively muted," said Alvin Tan,

currency strategist at Societe Generale (Paris: FR0000130809 - news) . "The big mover, I

guess, will be Yellen's speech later in the day."

Asian share markets had hitched a ride overnight on another

record close for Wall Street to end at a six-and-half-year high.

JANET AT JACKSON

Yellen makes her first trip to Jackson Hole as Fed chair

after U.S. data on Thursday showed home resales rose to a

10-month high in July, unemployment claims fell and a gauge of

future economic activity grew solidly.

Kansas City Fed President Esther George said the time had

come for higher U.S. rates, though less hawkish San Francisco

Fed President John Williams suggested the bank should wait until

next summer.

Yields on rate hike-sensitive 2-year U.S. government bonds

have risen the most since March this week. In contrast, worries

about the euro zone slipping towards deflation and near-zero

growth pinned German 10-year government bond yields firmly

below 1 percent on Friday.

ECB President Mario Draghi is under pressure to use his last

remaining tool - printing money to buy huge amounts of bonds -

to tackle near-zero inflation but he is not expected to show any

renewed urgency in that regard when he speaks later.

Market measures of euro zone inflation expectations have

been nose-diving in recent weeks following a run of poor data.

They now even predict the bloc will be in a worse position than

deflation-prone Japan in 30 years' time.

"The odds of QE in the near term are relatively low,"

Pimco's European strategist and portfolio manager Myles Bradshaw

said. "The market is thinking more about what will happen in

2015."

EMERGING STRENGTH

As MSCI's broadest index of Asia-Pacific shares outside

Japan ended the week within a few points of a

6-1/2-year, the main emerging market index hit a

three-year high.

The index tumbled last May and in January when U.S. rate

hike talk was also top of the agenda. But this time stocks in

China have risen for the last six weeks and even

Russian stocks remained on course for a second week of

gains.

In commodities trading, spot gold rose 0.3 percent to

$1,281 an ounce, after losing 1.3 percent on Thursday as rate

rise expectations sent it ploughing through some key support

levels to a two-month low.

Copper, finely tuned to China's fortunes, was eyeing a

seven-week high while U.S. crude was slightly higher at

$93.98 a barrel but still set to post a fifth straight weekly

fall.

The sophistication, wealth and military might of Islamic

State represent a major threat to the United States that may

surpass that once posed by al Qaeda, U.S. military leaders said

on Thursday. So far, however, the fighting has had little impact

on oil supply.

(Additional reporting by Anirban Nag in London; Editing by

Louise Ireland and John Stonestreet)