(Updates with U.S. retail sales, refreshes prices)
Global stocks eased from two-month highs on Wednesday while the safe-haven dollar fell, after Poland's president said a missile that hit his country was probably a stray Ukrainian defence projectile, dispelling fears that it originated from Russia.
Initial relief was enough to encourage some flows back into equities and commodities, but given the gains of the last couple of weeks, investors took the news as an opportunity to book profits, given the vulnerability of the economic backdrop in Europe and China.
"It is the worst when we hear such news. Even if it's not from Russia, this still causes uncertainty in the markets and the European market is especially fragile, heading to a confirmed recession next year due to the energy crisis and geopolitical tensions," Raed Alkhedr, chief market analyst at Equiti.com, said.
Data on Wednesday showed U.S. retail sales rose by 1.3% in October, compared with expectations for a 1.0% rise, showing consumers were undeterred by high inflation last month.
This gave a bump to the dollar, which cut some of the day's losses and weighed heavily on European shares.
The STOXX 600 .STOXX fell 0.8%, down from Tuesday's two-month peak, depressed by the auto sector after a report that Germany's Mercedes Benz MBGn.DE cut its China electric vehicle prices as sales lagged.
Germany's DAX .GDAXI fell 0.9%, while Britain's FTSE 100 .FTSE eased 0.2%
The MSCI All-World index .MIWD00000PUS hovered around the day's lows, down 0.2%.
When the missile struck, NATO member Poland first said a Russian-made rocket was responsible and summoned Russia's ambassador to Warsaw for an explanation after Moscow denied responsibility.
The dollar, which acts a safe haven in times of geopolitical or market turmoil, rallied overnight, before falling throughout the European session. But it pared losses after the retail sales figures, trading down 0.1% down against a basket of major currencies =USD .
"The initial reaction was understandable given that any deliberate strike on a NATO member would mark an enormous escalatory step," Deutsche Bank strategist Jim Reid said.
"It soon became apparent that this was highly unlikely to be a direct attack."
U.S. stock futures struggled to recover any ground, with S&P 500 e-minis ESc1 falling 0.2% and Nasdaq 100 futures NQc1 down 0.3%.
The euro EUR=EBS , which hit its highest since early July this week, rose 0.5% to $1.0403, while sterling GBP=D3 was up 0.2% at $1.1889 after UK data showed consumer inflation rose more than expected in October.
With political tensions injecting volatility into markets, benchmark 10-year Treasury yields US10YT=RR fell 1 basis point to 3.79%, around their lowest in a month.
Gold GCc1 rose 0.2% on the day to $1,776 an ounce, supported by a slightly weaker dollar, while Brent crude futures LCOc1 fell 0.6% to $93.33 a barrel, having retreated from an overnight high of $94.79.
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