Ukraine's government has declared the end of its Easter truce with armed separatists, heightening concerns of an escalation in the region's crisis - and the possibility of Russian intervention.
Ukraine, Russia, the U.S. and European Union signed an agreement calling for a de-escalation of the conflict last week, after weeks of turmoil near Ukraine's border with Russia.
But on Wednesday, Ukraine's First Deputy Prime Minister Vitaly Yarema said the truce was formally over, according to Reuters, and the government was relaunching its "anti-terrorist operation" against pro-Russian separatists.
The rebels are thought by many to be influenced by Russia – or even be Russian soldiers -- and continue to occupy state buildings in towns and cities across eastern Ukraine.
"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.
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."
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.
Russia's markets have already been badly hit this year as a result of the unrest. Its MICEX index is down around 11.7 percent year-to-date, and the dollar has gained 8.5 percent against the rouble over the same period.
Ukraine's currency has also floundered, despite interest rate hikes by its central bank. The dollar has risen around 40 percent against the Ukrainian hryvnia year-to-date. Although the hryvnia strengthened immediately after the rate hikes, it has fallen back in recent days.
Outside of the region, however, markets have remained relatively calm, beyond some turbulence at the time of the annexation of Crimea by Russia in late February and early March. Year-to-date, the pan-European Euro Stoxx 600 index is around 3 percent higher, while the U.S. has risen 1.6 percent.
"So far it has been quite contained – with the annexation of Crimea, for instance, contained to the peninsular," Ermolenko said. "But if things go further, and Russian troops move beyond eastern Ukraine even, it could get out of control and will definitely hit markets more broadly."
One thing that would have a tangible impact on markets would be further sanctions – either from the West or Russia.
The U.S. and EU have already imposed travel bans and asset freezes on a number of Ukrainian and Russian officials, with Moscow retaliating by imposing sanctions of its own. On Tuesday, Russian Prime Minister Dmitry Medvedev said the Kremlin was prepared for wider Western sanctions.
"I think we're going into tougher, targeted (Western) sanctions," Nomura's Newton said. "If Putin intervenes overtly – militarily - I think we're going to get America, with or without the Europeans, imposing banking sector sanctions… that's going to cause a lot of pain."
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Barclays' Vakhitov and Hewitt added that the next round of penalties could see more names added to the list of individuals targeted by the West, and some institutions singled out.
"Direct Russian military involvement in Eastern Ukraine has been cited as a trigger for more substantial measures, such as trade sanctions… Furthermore, we would expect Russia to retaliate with sanctions of its own," they wrote.
"The next installment of sanctions (are) likely to be introduced in the next few weeks… leading to an overall escalation of the tensions."