Ukraine Crisis Knocks Britain's Blue Chips to 3 Week Lows

Rising tensions over Ukraine knocked Britain's FTSE 100 on Monday morning, as oil major BP fell 1.3% and wiped 5 points off the index.

Armed pro-Russian militants continue to occupy government buildings in eastern Ukrainian cities, in defiance of an ultimatum from Kiev.

Ukraine's interim government warned that a "full scale anti-terrorist operation" would proceed on Monday and that the region would "soon be stabilised," although the 6am GMT deadline passed without any action.

The prospect of military escalation between Ukraine and Russia has dampened broader market sentiment, as Brent crude prices rose to more than $108 per barrel on Monday.

"We are sticking on the sidelines for now, at least for the next few days to see how the Ukraine situation develops," Sanlam Securities head of trading Mark Ward told Reuters.

The FTSE 100 index had dropped 0.6% by 0817 GMT on Monday, following Friday's 1.2% drop. Stocks were hit last week after concerns about over-stretched tech stock valuations in the technology sector spread to European exchanges. The UK benchmark is now down more than 3% this year.

Of the oil majors, BP is the most exposed to Russia through its near 20% stake in the Kremlin's oil giant Rosneft

The company's chief executive Bob Dudley told shareholders last week that BP will use its presence in Russia to ensure that the discord between Moscow and the West does not deteriorate to an unworkable level.

However, events on the ground are moving quickly and some investors are jittery about the prospect of a military confrontation or a gas war between Russian and its neighbour.

At an emergency session of the United Nations Security Council on Sunday, Ukraine's representative said Moscow had orchestrated the unrest in eastern cities, while Ukraine's foreign ministry said it had proof that Russia was behind a "separatist operation".

The Russian delegate urged Kiev to enter into a genuine dialogue with the protestors and warned against using violence.

Meanwhile, the United States and the European Union are considering tougher economic sanctions against Moscow.

EU foreign ministers will meet on Monday to discuss the Ukraine crisis and the prospect of a gas war.