Markets bounce as Obama and Putin take heat out of Ukraine tensions for now

Investors remained nervous because despite his apparent goodwill gesture, Mr Putin referred to the separatists as defenders of "Novorossiya", or New Russia, which is a term AP reports was first attributed to the tsars as they sought to expand their holdings.

Overnight on Wall Street worries over Ukraine offset encouraging data showing the US economy grew at an annual rate of 4.2pc in the second quarter, with the Dow Jones slipping 0.25pc and the S&P 500 dipping 0.2pc as it pulled back from Wednesday's record close above 2,000. Ukraine tensions also weighed on Asian markets on Friday, with Tokyo's Nikkei sliding 0.2pc and Hong Kong's Hang Seng flat.

When news of the incursion first emerged earlier on Thursday, market reaction was subdued, with some traders adopting a "we've been here before" attitude.

However, investors became more jittery after Nato released images of Russian Self-Propelled Artillery in Ukraine, security officials said two columns of tanks entered the south east of the country, and the UN Security Council called an emergency meeting.

^{Satellite image of Russian artillery inside Ukraine released by Nato}

Ukraine, the US and the EU claim well-armed Russian troops have spearheaded a counter-offensive that has seen pro-Moscow rebels win back territory from Ukrainian government forces.

The incursion comes just days after the two countries held peace talks. There have been reports that Russia is attempting to create a bridge between Donetsk and Crimea as it backs pro-separatists.

Moscow rejects the claims, but Mr Obama, German Chancellor Angela Merkel and David Cameron, the British Prime Minister, warned of "consequences" if Russian aggression continued.

Mr Cameron said: "It is simply not enough to engage in talks in Minsk, while Russian tanks continue to roll over the border into Ukraine ... We urge Russia to pursue a different path and to find a political solution to this crisis. If Russia does not, then she should be in no doubt that there will be further consequences."

Earlier on Thursday, Kostiantyn Yelisieiev, the ambassador of Ukraine to the EU, made this plea in strongly worded statement: "Russia has started an uncovered military invasion of Ukraine. Our sincere attempt to offer a hand of peace to Russia in Minsk got a cynical silly smile in response.

"The same night we witnessed the crossing of Ukrainian border by motorcades of Russian military vehicles and equipment. 'Green men' without insignia, similar to those we saw in the Crimea, are flooding Ukraine.

"Ukraine and the European Union must stop this war ... Enough of connivance and appeasement of the aggressor."

The Ukraine called for a special extraordinary session of the European Council on Ukraine on August 30 and urged "significant sanctions and large-scale military and technical assistance to Ukraine in order to stop the aggressor".

^{Brigadier general Nico Tak}

Senior NATO official, Brigadier general Nico Tak, told a press conference that "well over a thousand" Russian troops were operating inside Ukraine.

"They support separatists, fighting with them and fighting amongst them," he said, adding that the supply of arms by Russia had increased in both "volume and quality".

Desmond Chua of CMC Markets said any good news would be "sidelined by developments out of Ukraine".

Although, some traders remained sceptical, with one cautioning that volumes in London were thin with many traders still on holiday this week and this made stock movements - up or down - appear more volatile.

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