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European markets tumble as Russian convoy presses into Ukraine

We're from the Russian government, and we're here to help...DMITRY SEREBRYAKOV/AFP--Getty Images

European stock markets tumbled again Friday after Ukraine accused Russia of a “direct invasion” of its territory by a convoy of trucks ostensibly carrying humanitarian aid.

Kyiv has voiced concerns for over a week that the convoy could be used by Russia either as a cover for resupplying pro-Russian rebels with arms and ammunition, or as a prelude to military intervention by Russia itself. Ukrainian forces are now in a situation where they either have to let the convoy through to the besieged city or risk triggering a military response by engaging it.

The German DAX index fell 0.4% and the Russian MICEX index fell 1.4% as a large part of the Russian convoy started crossed into Ukraine and started en route to rebel-held Luhansk without the accompaniment of the International Red Cross. The Russian Foreign Ministry said it could no longer allow the convoy of around 300 vehicles to be held up by Ukrainian officials, who had begun to inspect it Thursday.

“It’s impossible to put up with the prevarication, barefaced lies and bad faith any longer,” the Ministry said.

The Ukrainian government called the move “illegal…deliberate and aggressive,” while the Red Cross said it hadn’t been able to escort the convoy because of the “volatile security situation” and the lack of concrete guarantees for its staff. It noted there had been heavy shelling in Luhansk overnight. Valentin Nalivaychenko, head of the Ukrainian Security Service, told reporters it was “a direct invasion.”

“In the last few days we have been witness to a thoroughly planned and dangerous provocation against Ukraine with the offensive and cynical exploitation of the respected International Commission of the Red Cross,” he added.

Financial markets had had a similar scare a week ago, when Ukraine had claimed to have engaged and destroyed Russian armored fighting vehicles on its territory. However, the claims were dismissed by Moscow and weren’t verified independently, and markets had more than recovered the lost ground, until the news broke.

Time has appeared to be running out for the rebels in Luhansk, who have been encircled by government forces in the last two weeks. The Ukrainian army appeared to have reclaim parts of the city earlier in the week, although they continue to suffer some stinging reverses both in Luhansk and around Donetsk.

However, at the same time, the pressure on Ukraine’s battered economy is also threatening to become unbearable, putting pressure on President Petro Poroshenko to look for a ceasefire even at the risk of allowing the rebels to consolidate their position. The Ukrainian currency, the hryvnia, fell to a new all-time low of 13.45 to the dollar Friday, and has lost nearly 40% of its value so far this year.

Poroshenko is due to meet with Russian President Vladimir Putin for the first time in two months on Tuesday in Minsk, Belarus. He’s also due to meet German Chancellor Angela Merkel in Kyiv at the weekend, during celebrations of Ukraine’s independence from the Soviet Union.