Russian Exchanges Halt Trading As Shares Plummet

Trading was suspended on Russia's two main stock exchanges after shares fell dramatically for the second day in succession, forcing the central bank in Moscow to intervene.

Regulators halted trading at midday (9am BST) on Russia's main stock indices - the rouble-denominated Micex and the dollar-denominated RTS - following a similar suspension yesterday.

Russia has been badly affected by the global financial crisis, and has suffered as stocks have sunk in Europe and Asia. But it has also been hit by the rapid fall in oil prices and the flight of foreign investors since the war in Georgia.

Today, Russia's finance ministry said it was pumping $44.9bn roubles (£1bn) into the country's three largest banks - Sberbank, VTB, and Gazprombank - in an attempt to shore up the liquidity of Russia's banking system.

Russia's finance minister, Alexei Kudrin, said he did not expect to be forced to use Russia's enormous reserves - the world's third largest - currently held in a stabilization fund. "The crisis is not deep enough to warrant that," he remarked.

Instead, Kudrin suggested that larger banks would now lend to "small and medium banks" unable to settle their obligations. On Monday, Russia's central bank and finance ministry injected $20bn into money markets.

But there was growing speculation this morning that one of Russia's largest investment banks, KIT finance, could become the next victim of the global crisis. It failed to settle its accounts on Monday and is now in urgent talks to find a strategic investor.

Russia's current economic crisis is superficially reminiscent of the 1998 crash, when the rouble was devalued, banks defaulted on loans, and the savings of many ordinary Russians were wiped out overnight.

Today, however, analysts pointed out that the Russian economy is much stronger than it was a decade ago. Additionally, it is integrated into the world economy, one of the reasons for its current predicament.

"The mood is changing rapidly. But at the current moment I'm still cautiously optimistic," Natalia Orlova, chief economist at Alfa Bank told the Guardian this morning. Russia had low foreign debt, a budget surplus and $200bn in a stabilization fund, she said. It also had industrial growth last month of almost 5%.

She added, however: "We are clearly facing a confidence crisis in the banking sector. Potentially it might have very serious complications in the long term. But the financial crisis will not be as significant (in Russia) as in the US or western Europe."

Russian banks face an additional headache next month when quarterly Value Added Tax payments are due, Orlova said. Chris Weafer, chief strategist at UralSib bank, said investors are panicking, even though Russia's underlying fundamentals are sound.

"The market is trading as if it is close too a default," Weafer wrote in a note to investors, quoted by the Associated Press. "In reality, it has the world's third largest financial reserves and is still earning about $850m everyday from crude, oil products and gas exports."

Yesterday, Russia's markets posted their biggest ever single-day losses, with the RTS falling by 11.5% and the Micex index slumping by 17.5%. This morning, stocks fell still further before they were suspended - with the RTS down 3.9% from yesterday, and the Micex down 4.7%.