In the first hour of trading, the benchmark RTS1-Interfax index lost 11% - some shares fell by as much as 17% - and trading was suspended for half an hour.

But it gradually picked up, fuelled by bargain hunters, and at the end of the day was down just 1.4% from Friday's close at 103.15.

"Some foreign investors have seen the price drop as the chance to do discount buying," said Martin Diggle of Brunswick Warburg in Moscow.

Eric Fine of Morgan Stanley: "The market will be volatile for a couple of weeks"

It was the sharpest fall the market has seen recently. Oil prices had helped it to 12-month highs before an easing in the past month in very thin trade.

But observers said the sacking had been factored into prices in recent weeks.

President Yeltsin's announcement that parliamentary elections would take place on 19 December, as expected, cheered investors.

Traders are feeling slightly more optimistic

The market was also optimistic after he finally named a chosen successor - Vladimir Putin, his new acting prime minister.

Many analysts felt Mr Yeltsin's departure from office would bring greater stability.

"It's always a gamble where Yeltsin is concerned," said one trader. "At least now, though, we are getting indications that he is heading for the door, or at least thinking about it."

The rouble was also hit by the sacking. It fell to 25 against the dollar, compared with Friday's close of an average 24.55. But in street trading it was as low as 27. Heavy central bank intervention had little impact.

Rouble has held steady

Traders had been expecting the rouble to rise on Monday. Although it has wobbled a little this month, it had climbed steadily throughout July.

In fact, Mr Stepashin made it clear in his resignation statement that he regarded that as an achievement.

"These three months haven't been wasted, we have managed to keep the situation in the country under control. The rouble hasn't plunged, contrary to many predictions," he said.

Mr Stepashin's predecessor, Yevgeny Primakov, was sacked because his economic reforms were too slow for President Yeltsin.

In three months, Mr Stepashin has had little time to have any effect, but he has overseen the long-awaited securing of a $4.5bn loan from the International Monetary Fund.

Russia and its commercial creditors were also working towards rescheduling about $32bn of debt, though talks on that front might be delayed by the shake-up.

No change - for now

But the initial signs were that Russia would be maintaining its existing economic policy at least for the time being.

"Unless we hear something different from the Russians, we will continue working on the assumption that there will be no change in economic policy or in Russia's plans for co-operation with the IMF," said an IMF official.

That comment was echoed by Mr Yeltsin's envoy to the G8 group of industrialised nations, Alexander Livshits, who said the reshuffle "will not have a negative impact on Moscow's relations with the IMF, the World Bank or other international financial institutions".

However, it is not clear whether an acting government could push through the changes in banking law required under the terms of the IMF loan.