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Russia Suspends Stock, Bond Trading As Market Dives

Anxious times

Anxious times

MOSCOW (Reuters) -- Russian bourses have halted stock and bond trading, amid the worst falls since the country's 1998 financial collapse and the Finance Ministry pledged a total of $60 billion of funds to help local banks.

Investors have dumped Russian assets after global financial turmoil combined with falling oil prices and Moscow's war with Georgia to form an especially toxic cocktail for local markets.

"We don't give a damn anymore as to what happens in the West. The market is falling as people are in dire need for cash," said Maksim Gulevich, director of equities trading at UBS.

Trading in shares, bonds, and mutual funds on Russia's MICEX and RTS exchanges was suspended for at least five hours until further notice from the markets watchdog, which said a decision was unlikely before 5 p.m. local time (1300 GMT).

The watchdog said the two bourses must come up with anticrisis measures after benchmark indexes tumbled 10 and 6 percent respectively on the day and local brokerage Kit Finance said late on September 16 it was unable to meet all its obligations.

"The market is trading as if it is close to a default while in reality it has the world's third largest financial reserves and is still earning about $850 million every day from crude, products, and gas exports," said Chris Weafer, chief strategist at local brokerage Uralsib.

"The reason for the market collapse is partly the forced selling on margin calls and fund redemptions but mainly because few...are brave enough to buy," he added.

The MICEX continued to trade currency and the rouble stood flat versus the dollar/euro basket at 30.38, near the 30.40 level which the Central Bank has defended this month by selling dollars.

Market players said stocks were at first supported by early gains in global equities and a rebound for oil prices, but concerns over liquidity then exerted strong downward pressure.

The Russian RTS index is currently almost 60 percent down from its peak of nearly 2,500 points reached in May.

Although many emerging markets around the world have suffered from the shockwaves generated by the global financial crisis and the collapse of U.S. investment bank Lehman Brothers on September 15, Russia has been hit far harder than others.

The benchmark MSCI global emerging market index rose 1.85 percent, in contrast to the big sell-off in Moscow.

In a sign of looming problems in Russia's financial sector, mid-sized brokerage Kit Finance said it was in talks with a strategic investor after failing to meet some of its obligations on September 16.

A government source told Reuters September 16 the situation in brokerages, which do not have direct access to the central bank's refinancing, is worse than in commercial banks.

Top officials, who had for months insisted that Russia was a safe haven amid global financial turmoil, started to announce emergency measures to restore confidence.

The Finance Ministry raised the amount of state money it would lend to the country's banks to nearly $60 billion and the Central Bank pumped a record of over $13 billion into the local money markets via its repo auction.

But one sales trader at a Western bank said it was still not enough.

"The crisis of confidence remains and the money the Central Bank is pumping into the system is not sufficient -- it is only going to the major players and the smaller ones are suffering," the sales trader said.

The rates at which banks lend each other money overnight eased slightly to around 10 percent from September 16 peaks of around 11 percent, but were still more than twice as high as at the start of August -- another sign of low confidence.

Finance Minister Aleksei Kudrin said he counted on the biggest banks to pass on liquidity to smaller players, and that there was no need to use windfall oil cash to fight the crisis. He added he would not allow a sharp fluctuation of the ruble.

First Deputy Prime Minister Igor Shuvalov said further measures would be announced throughout the day.

Investors began to pull money out of Russia over the summer, following a stream of negative news about government interference in two major companies, compounded by Moscow's military conflict with Georgia.

Oil prices, which lost over a third of their value over the past months, also contributed heavily to the decline as energy stocks form the bulk of benchmark indexes.

Russian officials say that $570 billion in reserves, the world's third-biggest, strong economic growth, and buoyant energy export revenues should insulate the country from global turmoil. Russian five-year credit default swaps were trading around 253-255 basis points, unchanged from September 16 but more than double the level seen before the start of the conflict with Georgia.

The head of the World Bank in Russia, Claus Roland, told a news conference on September 17 he believed the country's economic fundamentals were sound and liquidity measures were adequate to help Russia weather the global storm.