Tags: russia | stops | trading

Russia Halts Trading to Stop Market Meltdown

Wednesday, 17 Sep 2008 05:02 PM

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MOSCOW — Russia suspended trading on its two main stock markets for a second day Wednesday as shares nosedived and officials pledged $44 billion to fight collapsing investor confidence.

The Federal Service for Financial Markets (FSFM) halted trading on both the RTS and the MICEX after they fell 6.39 percent and 3.09 percent respectively, market officials said. The stock markets remained closed all day.

The move came a day after Russian stocks suffered their worst drop since the 1998 financial crisis, with the RTS falling 11.47 percent Tuesday and the MICEX down 17.45 despite a one-hour suspension of trading on both markets.

The meltdown prompted Russia's central bank to slash reserve requirements for banks in a bid to restore confidence as central bank head Sergei Ignatyev said he hoped for a return to normalcy in several days.

Moscow-based investment bank Kit Finance, which had been rumoured to be close to collapse, meanwhile announced it was in the final stages of selling out to Leader, a Russian insurance company, RIA Novosti news agency reported.

The bank earlier said it had failed to meet some financial obligations.

Analysts said government action was needed to prevent a dangerous erosion of confidence in Russia's banking sector, which has grown rapidly but also struggled to achieve stability since the financial crash of 10 years ago.

"The state guarantees bank accounts so there's no need to worry. There's no risk of defaults," Finance Minister Alexei Kudrin, one of several officials trying to calm worries, said in televised comments.

The banking system is facing "a major crisis of confidence," said Vladimir Osakovsky, an economist with the UniCredit Aton investment bank in Moscow. "It's good that they have closed the market. It was panic."

Vladimir Milovidov, head of the FSFM, said: "It was a technical measure aimed at calming the market. In this situation, it's good to analyse and look at fundamental factors in the economy."

The benchmark RTS has now lost 57 percent since hitting an all-time high in May, a slump analysts put down to falling energy prices, global market turmoil and political issues, including worries over the war in Georgia.

The financial sector led Wednesday's falls, with state-controlled retail banking giant Sberbank plummeting 17.33 percent on the RTS.

After an hour of trading, the finance ministry announced it would inject 44 billion dollars (31 billion euros) into the market via three state banks.

The FSFM stopped trading when it became clear the money would not get into the market quick enough, analysts said.

"It took too long for the money to get into the system," said Chris Weafer, an analyst at Moscow investment bank Uralsib.

"They were afraid of panic selling so they stopped the market," he said.

Analysts attributed the day's falls to turmoil on Wall Street in the wake of the Lehman Brothers investment bank collapse, a massive U.S. government bailout of insurance giant AIG and a fall in the oil price.

Seeking to add liquidity to the banking system, the Central Bank said it was slashing a range of reserve requirements for banks by four percent.

The move will inject $11.8 billion (8.3 billion euros) into the market, RIA Novosti news agency reported.

"Regarding the normalisation of the situation in the banking sector, I hope very much that this will take place in a matter of days. ... It's clear that the market will turn around but I don't know when. I hope tomorrow," Ignatyev said.

The country's leading banks are not at risk of collapse but the government fears the failure of a smaller bank with some name recognition could spark panic, Weafer said.

Prime Minister Vladimir Putin said Tuesday that Russia could withstand financial turmoil, the latest in a string of speeches by top officials urging calm in the wake of Russia's war in Georgia.

President Dmitry Medvedev last week said that a quarter of the market's losses could be attributed to the conflict, in part reflecting fears that a stand-off with the West would hurt business.

The rest, he said was the result of global financial turmoil.

Weafer said worries at the prospect of further drops in the price of oil — the commodity that has fuelled Russia's spectacular economic gains in recent years — also were taking a toll on markets.

Copyright 2008 APF

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