* U.S. plans new sanctions on Russia

* Ukrainian hryvnia hits lowest since 2015

* Hungarian c.bank decision eyed

Feb 22 (Reuters) - Emerging market assets dropped on Tuesday after Russian President Vladimir Putin formally recognised two breakaway regions in eastern Ukraine, sending Russian stocks tumbling and the Ukrainian hryvnia to multi-year lows.

The Ukrainian currency slipped 1.3% to 29.11 against the dollar, touching its lowest level in seven years, while the rouble-based MOEX Russian index dropped 6.1% to its lowest since November 2020. Russia's dollar-denominated RTS index fell 6.7%.

Geopolitical tensions between Russia and Ukraine escalated after the Ukrainian military said two soldiers were killed and 12 wounded in shelling by pro-Russian separatists in the east in the past 24 hours, the most casualties this year, as ceasefire violations increased.

The United States and its European allies were also set to announce fresh sanctions against Russia, but the rouble gained 0.4%.

"What markets are deciding is that the probability of huge sanctions on Russia that could hurt the rouble are quite low," said Gabriel Sterne, head of strategy services and global EM research at Oxford Economics.

Sterne also pointed to the rouble being undervalued compared to its other emerging market peers as well as recent monetary tightening in the region keeping the currency attractive for foreign investors, but warned that a proper invasion of Kyiv could see the rouble being pressured.

MSCI's index of emerging market stocks shed 1.4%, while its currencies counterpart lost 0.2%

Ukrainian government dollar-denominated bonds lost roughly 8.3%.

MSCI's emerging market eastern European equities index also tumbled 5.0% and South Africa's rand fell 0.2% as appetite for riskier assets faltered. Gold hit a near nine-month high.

Meanwhile, Hungary's forint struggled for direction versus the euro before announcing an interest rate decision later in the day, as the central European country grapples with a surge in inflation during an election year.

China stocks fell 1.0% and 1.3%, respectively, amid a global risk-off driven by geopolitical worries, while fears over a fresh round of regulatory crackdowns in the tech sector also weighed on sentiment.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

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For RUSSIAN market report, see (Reporting by Anisha Sircar and Shreyashi Sanyal in Bengaluru; editing by Uttaresh.V)