Russian stocks plunge further despite gov't measures

Trading on Russia's MICEX and RTS exchanges was suspended after their indexes tumbled 10 and 6 percent respectively on the day, reversing earlier gains.

The rouble stood flat versus the dollar/euro basketat 30.38, near the 30.40 level which the central bank has defended this month through dollar-selling interventions.

Market players said the stocks had been first supported by early gains in global equities and a rebound of oil prices, but concerns over liquidity were putting on downward pressure.

"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," said Chris Weafer from UralSib.

The Russian RTS index is currently almost 60 percent down from its peak of nearly 2,500 point 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 Monday, Russia was hit far harder than others.

The benchmark global emerging market index rose 0.5 percent on Wednesday, in contrast to the sell-off in Moscow.

Investors pulled money out of Russia following the 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.

On Tuesday, the MICEX market had its biggest percentage fall since the Russian financial system collapsed in 1998.

The government held an extraordinary meeting on Tuesday evening as lending between Russian banks all but dried up, despite huge injections of money from the central bank.

MORE FUNDS FOR BIGGEST BANKS
The first anti-crisis measures began to emerge on Wednesday morning with the Finance Ministry saying it would offer extra budget funds for deposit at three of the country's major banks in a bid to boost banking sector liquidity.

State-owned Sberbank and VTB will get deposits of up to 754.2 billion roubles ($29.58 billion) and 268.5 billion roubles, respectively. Gazprombank, the banking arm of Gazprom, will get up to 103.9 billion roubles.

"By the end of the week, the government of the Russian Federation and the Bank of Russia will take further additional measures to support liquidity in the banking system," the Finance Ministry said in a statement.

But a source 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 source said.

Overnight interbank rates eased slightly to around 10 percent from Tuesday's peaks of around 11 percent, but were still more than twice as high as at the start of August.

KIT FINANCE IN SALE TALKS
Finance Minister Alexei 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 sharp fluctuation of the rouble.

The central bank injected a record 340 billion roubles of one-day funds in Wednesday's first repo auction, out of a maximum 430 billion on offer.

Later in the day, the Finance Ministry will place up to 350 billion roubles of budget funds on deposits at commercial banks.
In a sign of looming problems in the financial sector, mid-sized brokerage Kit Finance said on Tuesday it had failed to meet some of its financial obligations.

On Wednesday, it said it was in talks with a strategic investor on a stake sale to help avoid problems. Vedomosti business daily quoted an unnamed banker as saying VTB might buy Kit Finance. VTB shares fell 15 percent on the MICEX before trading was suspended on the exchange.
A government source told Reuters on Tuesday the situation in brokerages, which do not have direct access to the central bank's refinancing, is worse than in commercial banks.

Russian officials have consistently argued that $570 billion forex and gold reserves, the world's third biggest, strong economic growth and buoyant export revenues from oil, gas and metals mean the country is insulated from global turmoil.

"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 Weafer.