Russia suspends stock, bond trading as market dives

MOSCOW (Reuters) - Russia halted stock and bond trading on Wednesday amid the worst market falls since the country's 1998 financial collapse and the Finance Ministry pledged a total of $60 billion of funds to help local banks.

Trading in shares, bonds and mutual funds on Russia's MICEX and RTS exchanges was suspended after less than two hours, preventing further selling on top of Tuesday's record-breaking falls. It was not clear when the bourses would reopen.

"The crisis has a shade of panic to it. The decision to stop trading was motivated by the desire to remove this panic element," said Stanislav Ponomarenko, head of research for Russia at ING bank.

Russian stocks, once touted by the government as a safe haven, have now plunged around 60 percent since May. Traders say global financial turmoil mixed with falling oil prices and Moscow's war with Georgia have formed a lethal cocktail.

"We don't give a damn anymore as to what happens in the West. The market is falling as people are in dire need for cash," said Maxim Gulevich, director of equities trading at UBS.

The Kremlin was silent on the crisis on Wednesday but Deputy Finance Minister Pyotr Kazakevich, announcing new measures to boost liquidity, said there was no fundamental problem.

"What we have on the market is mainly a confidence crisis and only secondly a liquidity crisis," Kazakevich said.

As well as pumping billions more state money into the country's cash-starved banking system, Russia's central bank also slashed the amount of money local banks are required to hold as reserves against their loans.

The central bank's chief Sergei Ignatyev said the move, effective Thursday, would release another 300 billion roubles ($11.76 billion) of liquidity.

In a sign of problems in Russia's financial sector, mid- sized brokerage Kit Finance said it was talking to a strategic investor after failing to meet some obligations on Tuesday.

Meanwhile, analysts tried to focus attention on Russia's strong underlying economic position.

"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 Chris Weafer, chief strategist at local brokerage Uralsib.

"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," he added.

The head of the World Bank in Russia, Claus Roland, told a news conference on Wednesday he believed the country's economic fundamentals were sound and liquidity measures were adequate to help Russia weather the global storm.

LIQUIDITY PROBLEMS

The MICEX continued to trade currency and the rouble closed slightly weaker versus the official dollar/euro basket at 30.40, the level which the central bank has defended this month by selling dollars.

Market players said stocks were at first supported by early gains in global equities and a rebound for oil prices, but concerns over liquidity then exerted strong downward pressure.

Russia's dollar-denominated RTS index stood at 1,058 points when trading was halted, nearly 58 percent down from its peak of 2,498 points 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 has been hit far harder than others.

The benchmark MSCI global emerging market index fell 1.25 percent on Wednesday, a much smaller decline than the big sell-off in Moscow.

Earlier in the day, officials announced measures to restore confidence, though these failed to restore confidence.

The Finance Ministry raised the amount of state money it would lend to the country's banks to nearly $60 billion and the central bank pumped a record of over $13 billion into the local money markets via its repo auction.

One sales trader at a Western bank said it was 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 sales trader said.

The rates at which banks lend each other money overnight 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 -- another sign of low confidence.

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 a sharp fluctuation of the rouble.

Russian 5-year credit default swaps traded around 253-255 basis points, unchanged from Tuesday but more than double the level seen before the start of the conflict with Georgia.

(Additional reporting by Gleb Bryanski and Dmitry Sergeyev; Writing by Dmitry Zhdannikov and Michael Stott; Editing by Louise Ireland and David Cowell)