Oil Price Fall and Global Crisis Force Suspension of Russian Stockmarkets

Russia yesterday suspended trading on its two main stock exchanges after shares plummeted for a second day, forcing the central bank to intervene.

Regulators halted trading at midday local time on Russia's main stock indices - the rouble-denominated MICEX and the dollar-denominated RTS - after a similar suspension on Tuesday. By 6pm in Moscow last night, they had not reopened.

Russia has been hit by the global financial crisis, suffering as stocks dived in Europe and Asia. It has also been hurt by a rapid fall in oil prices and the flight of foreign investors since its dispute with Georgia.

Yesterday, Russia's finance ministry said it was pumping nearly $60bn (£34bn) into the three largest banks - Sberbank, VTB and Gazprombank - to shore up liquidity in the banking system. With the Kremlin last night promising further measures, finance minister Alexei Kudrin said he did not expect to use Russia's enormous reserves. Instead, he suggested larger banks would lend to "small and medium banks" unable to settle their obligations.

On Tuesday, Russia's central bank and finance ministry injected $20bn into money markets. But there was growing speculation one of Russia's largest investment banks, KIT Finance, could be the next victim of the global crisis. It failed to settle accounts on Tuesday and is in urgent talks to find a strategic investor.

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

Yesterday, however, analysts pointed out 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 predicament.

"The mood is changing rapidly. But at the moment I'm cautiously optimistic," Natalia Orlova, chief economist at Alfa Bank told the Guardian. Russia had low foreign debt, a budget surplus and $200bn in a stabilization fund, she said, before conceding: "We are clearly facing a confidence crisis in the banking sector. Potentially it might have serious complications in the long term. But the financial crisis will not be as significant as in the US or western Europe."

Chris Weafer, chief strategist at Uralsib bank, wrote in a note to investors, "The market is trading as if it [Russia] is close to a default. In reality it has the world's third-largest financial reserves and is earning about $850m (£460m) every day from crude, oil products and gas exports."

On Tuesday, Russia's markets showed their biggest single-day loss, with the RTS falling 11.5% and the MICEX slumping 17.5%. Before yesterday's halt, the RTS was down 3.9% and the MICEX 4.7%.