Page last updated at 14:22 GMT, Wednesday, 17 September 2008 15:22 UK

Trading in Russian shares halted

Russia traders
Russian traders are nervous

Trading on Russia's main stock exchanges has been suspended following steep falls in shares prices this week.

The shock developments on Wall Street this week spurred a sell-off in Russian shares, which on Tuesday sank to levels not seen since December 2005.

Following a plunge of 6%, the dollar-denominated RTS index halted trading on Wednesday until further notice. It is down almost 60% since its May peak.

Trading on the rouble-denominated Micex was also suspended.

This comes after shares on the Micex slumped by almost 18% on Tuesday to 888.17 points - its largest one-day decline since Russia's financial system collapsed in 1998.

"There is certainly a level of fear about the risks to the Russian economy not seen since the crisis of 1998, but the driving forces now are quite different," said Tom Mundy, a strategist at Renaissance Capital in Moscow.

Ebbing confidence

Russia's stock market, one of the best performing for the past few years, has been buffeted by a combination of events in the past few months.

The global financial crisis

With about 75% of the indexes made up of commodity firms, the decline in oil prices from a peak of $147 a barrel in late July has spurred investors to take profits.

Confidence was shaken further by Russia's invasion of Georgia last month with billions of dollars of foreign capital pulled out of the country in August alone.

Adding to this there have been mounting worries over the global credit markets, particularly after the demise of US banking giant Lehman Brothers and problems at insurer AIG this week.

While shares in emerging markets have been hit by the problems on Wall Street, Russian shares have borne the brunt of the sell-off.

Liquidity squeeze

Analysts said local banks had been affected by the global aversion to risk and had virtually stopped lending to each other.

The Russian central bank has been injecting extra funds into its money markets to ease liquidity problems at domestic banks, offering a record 361 billion roubles at its daily auction on Tuesday.

But despite this, lending between Russian banks continued to fall as the interest rate which they charge each other to borrow money overnight jumped to 11%.

This prompted the Kremlin to take additional steps on Wednesday to reassure investors about the stability of Russia's financial system.

The Finance Ministry said it would loan 1.13 trillion roubles ($39bn; 21bn) to three of the country's biggest banks to boost liquidity.

The money will be offered to Sberbank, VTB Group and Gazprombank for a period of three months to make it easier for them to lend to smaller banks at affordable rates.

"These are market-making banks capable of insuring the liquidity of the banking system," the Finance Ministry said in a statement.


FTSE 100
23.70 0.44%
19.54 0.34%
Cac 40
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Dow Jones
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35.31 1.58%
BBC Global 30
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