WRAPUP 2-Russia talks confidence, markets don't listen

(Updates prices, adds quotes, bonds)

By Gleb Bryanski and Olga Popova

MOSCOW, Sept 15 (Reuters) - The Russian stock market plunged to its lowest level since mid-June 2006 on Monday as global liquidity concerns and falling oil prices blew away President Dmitry Medvedev's effort to project confidence in the economy.

U.S. investment bank Lehman Brothers' LEH.N filing for bankruptcy protection [ID:nN15469897] has added to market concerns, after souring relations with the West over a conflict in Georgia has already driven capital out of Russia.

On a day of forced selling, falling bank stocks dragged Russia's RTS index .IRTS down 4.8 percent to 1277.6 points, a two-year low, taking its losses for 2008 so far to 44 percent.

Oil stocks added to the pressure, as crude prices fell CLc1. Traders said global market turbulence was to blame.

"It is all because of Lehman, oil falling below $100 per barrel ... but in the foreground, general weakness of stock and fixed-income markets," said Gazprombank trader Vadim Khanov.

Russia's largest bank, state-controlled Sberbank SBER03.MM, fell over 3 percent.

Two of Russia's largest companies by market capitalisation lost more than 10 percent of their value. State-controlled bank VTB (VTBR.MM) lost 10.2 percent, while independent gas producer Novatek (NVTK.MM), a recent outperformer, lost over 15 percent.

Russian sovereign Eurobonds lost about 150 basis points, while credit default spreads widened by 50 basis points. Traders said corporate Eurobonds were impossible to sell, knowing Russian firms are facing $45 billion in debt redemptions by end 2008.

President Dmitry Medvedev said there was no Russian financial crisis and confirmed the authorities' commitment to economic reforms. He also pledged to provide extra liquidity to the financial sector.

"The task of the government at the present time is to ensure sufficient liquidity in the domestic market. There are such possibilities, and the orders have been given," Medvedev told a meeting of Russia's richest businessmen.

RUSSIAN CAPITAL

Medvedev, a 43-year-old former corporate lawyer, raised investors' hopes when he took over as the Kremlin chief in May that he would implement a reform agenda aimed at cementing political stability and boosting prosperity.

But Russia's invasion of Georgia last month raised the perception of risk among investors and fears that Medvedev's plans would be put on hold, transforming Russia into one of the worst-performing emerging markets within weeks.

Liquidity in the money market has been sapped by investors selling out of Russian assets over the past month and a half. Corporate tax payments soaking up liquidity from the banking sector have exacerbated the situation.

The central bank injected 326 billion roubles ($12.65 billion) of one-day funds in its twice-daily repo auctions on Monday, after a record 345 billion rouble injection on Friday.

The Finance Ministry almost doubled the amount of budget funds that can be used to help banking sector liquidity.

Finance Minister Alexei Kudrin was quoted as saying on Monday that the amount of budget funds that can be put on short-term deposit at commercial banks -- and thus help liquidity -- will be nearly doubled to 1.232 trillion roubles.

This week alone, the ministry will offer 425 billion roubles of budget cash via auctions.

Medvedev said Russian capital -- in particular from state and private institutional investors -- should play a bigger role in domestic financial markets and called for the use of "accumulated resources" to help stabilise the markets.

Medvedev's call echoed an earlier statement from Kudrin, who said Russia may use its windfall oil revenues to stabilise the markets if it becomes necessary.

"We need to see that actions follow words in order to stop the panic," Region brokerage trader Vladimir Vladimirov said. "The market is balanced at today's levels and is ready to consolidate. The government could be a stabilising force."

"If the market saw support for state companies, it would be a good sign."

Kudrin's statement prompted a harsh reaction from rating agency Standard & Poor's, which said spending Russia's oil wealth to prop up falling stocks would be negative for its investment-grade rating. (Additional reporting by Oleg Shchedrov, Guy Faulconbridge and Toni Vorobyova, Dmitry Sergeyev, editing by Will Waterman)