GLOBAL MARKETS-Iraq, Ukraine tensions keep markets on edge

(Updates ahead of Wall Street open, adds U.S. business survey

data)

* Main European bourses 0.3-0.5 pct lower as Iraq, Ukraine

tensions weigh

* Crude near 9-month highs on fears of impact of Iraqi

insurgency

* Wall Street seen down, Nikkei skids to two-week closing

low

* Fed meeting, China house price data in focus this week

By Marc Jones

LONDON, June 16 (Reuters) - Fighting in Iraq and renewed

tension in Ukraine drove a global shift into traditional

safe-haven currencies, precious metals and bonds on Monday, and

kept oil near a nine-month high.

The nervous mood also spread to stock markets where the

Nikkei in Tokyo saw its biggest fall in a month,

European bourses were in the red for the third time in

four days.

The same was expected from Wall Street.

Worries about Iraq were intensifying after Sunni insurgents

from the Islamic State of Iraq and the Levant (ISIL) seized a

mainly ethnic Turkmen city in the northwest of the country over

the weekend, in the latest scalp in a lightening

offensive.

It continued to drive fears about widespread turmoil in the

country and the region, that some specialists of the region

believe could potentially redraw borders that have been in place

since the fall of the Ottoman empire around a century ago.

Iraq is oil cartel OPEC's second largest producer and the

worries left Brent hovering at $112.50 per barrel as it

settled slightly after a $4 jump at the end of last week had

hoisted it to a nine-month high.

"I think investors are starting to look at this in terms of

global risk aversion," said Stuart Culverhouse, chief economist

at emerging market specialist brokerage Exotix.

"Clearly it is a fairly fluid and dangerous situation, but

if there is a significant deterioration in events, then that is

pretty much a lose-lose for everyone."

The rising oil prices and shrinking risk appetite weighed on

emerging Asian currencies particularly, with the rupee

hitting a five-week low and the rupiah and the South

Korean won also withering.

It was a boon for safe-havens though. Among the major

currencies the yen and Swiss franc rose

, while gold hit its highest in nearly three

weeks as it topped $1,280 an ounce for the first time this

month.

UKRAINE STRAINS

Iraq wasn't the only source of concern either. Hopes of

Ukraine coming off the boil were dashed after pro-Russian

separatists shot down a Ukrainian army transport plane, killing

all 49 military personnel on board.

Economic salvos also resumed as Russian gas exporter Gazprom (MCX: GAZP.ME - news)

said Ukraine had failed to adhere to a deadline to pay

at least some of its gas debts. Kiev will now have to pay up

front, suggesting supplies could be cut.

That saw both Russian and Ukraine assets fall sharply.

Moscow's dollar-denominated RTS index dropped as much as

2.5 percent as Gazprom shares slumped, while Ukrainian

bonds and the rouble and hryvnia tumbled too.

"The next big question is whether there will be any new

sanctions on Russia, probably more likely from the U.S.," said

Viktor Szabo a fund manager at Aberdeen Asset Management (Other OTC: ABDNF - news) .

FED FOCUS

The dollar slipped about 0.2 percent to 101.81 against

the in-demand yen to leave it near a two-week low, while bets

the U.S. may end up raising interest rates after Britain saw the

pound hit a 5-year high as it briefly topped $1.70.

Top (Taiwan OTC: 8419.TWO - news) -rated euro zone bonds also pushed higher as concerns

over the escalating geopolitical tensions supported safe-haven

government debt, outweighing general market caution ahead of the

U.S. Federal Reserve's meeting which concludes on Wednesday.

The central bank is expected to press on with its $10

billion-a-month reductions in stimulus. But with it also

expected to nudge down its economic forecasts, all eyes are on

any hints it gives on rates.

"The market is already expecting less (monetary policy)

tightening ahead," said Lee Hardman a currency analyst at Bank

of Tokyo Mitsubishi UFJ in London, referring to the recent

pricing changes in Fed fund futures contracts .

Wall Street was expected to be dragged back by the

Iraq worries when trading resumes, with Monday's main data focus

the NAHB housing market survey for June.

Ahead of that, the New York Fed's "Empire State" general

business index beat forecasts with its strongest read since June

2010.. Other data in focus this week is China's

latest report on foreign direct investment on Tuesday, and then

house price figures on Wednesday.

(Additional reporting by Lisa Twaronite in Tokyo; Editing by

Jeremy Gaunt)