"The (truce) deal achieved in Geneva never looked particularly promising, and nobody knows what is going to happen now," Liza Ermolenko, emerging markets economist at Capital Economics, told CNBC on Wednesday.
Ermolenko warned that a large military campaign by Ukraine against the separatists would be risky, because it could give Russia a reason to send its troops across the border.
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Barclays analysts Eldar Vakhitov and Daniel Hewitt agreed. "Continued violent incidents in eastern Ukraine are increasing the chances of Russian military intervention, even if it is hardly justified given low support from local population," they said in a note.
Alastair Newton, senior political analyst at Nomura International, stressed that markets were underestimating the risk of overt Russian military action. However, he added that "at this stage at least", it was unlikely Russian President Vladimir Putin would want to get drawn in.
"Although he (Putin) may – or may not - be able to control pro-Russian activists in eastern Ukraine, he can't necessarily control the reaction either of the Ukrainian authorities or of the ultra-right nationalists in Ukraine," Newton said.
"Things could spin out of hand. If they do, he may be forced by his own commitment to move into eastern Ukraine to protect Russian speakers there from perceived threat to life or limb."
Russia already has a substantial military presence along the Ukrainian border. Earlier this month, NATO released satellite images of what it said were between 35,000-40,000 troops in the region, "equipped with infantry fighting vehicles, tanks, combat aircraft, logistics, and artillery."
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Meanwhile, on Tuesday, U.S. Vice President Joe Biden called on Moscow to reduce troop numbers along the border, during a visit to Ukraine's capital, Kiev.
Ermolenko stressed that if Russian troops openly crossed the border, markets would be seriously affected, especially those in Russia and Ukraine.