UPDATE 2-London-listed Russia shares outperform, Moscow halted

(Updates index movement, adds quote, other index moves)

By Polina Vorobieva and Melissa Akin

MOSCOW, Oct 8 (Reuters) - London-listed Russian shares recovered to outperform global markets on Wednesday, while Moscow trade was halted after blue chips suffered double-digit percentage losses in the first 35 minutes of the session.

The FTSE Russia index .FTRIOB, down 17 percent in earlier trade, stood 2.9 percent lower at London's close.

It outperformed the MSCI Emerging Markets index .MSCIEF, down 7.9 percent, as well as the broader European market, with the FTSEurofirst 300 .FTEU3 down 6.3 percent

"There is obviously a large buyer in the market," said London-based Uralsib Bank director Julian Rimmer. "People suspect there may be some government-inspired buying or it could just be a very large fund that has decided to draw a line in the sand."

Russia has been one of the world's worst performers in the past three months. Moscow trade was suspended at 0705 GMT, with the benchmark index down more than 11 percent.

New York-listed Russian depositary receipts traded down 2-1/2 percent. LUKOIL GDRs (LKOHyq.L) managed a 3.9 percent gain to trade around $6 above the shares' last traded price on the MICEX, according to Reuters data.

Russian state bank VTB's GDRs (VTBRq.L) slipped 0.4 percent to trade at a $6 per GDR premium to their Moscow listed shares' last traded price, according to Reuters data.

Other GDRs lost as much as 30 percent, including retailer X5 (PJPq.L) which was hit by concerns the retail sector could be squeezed by tighter credit and declining consumption if economic growth falters.

Norilsk Nickel GDRs, (NKELyq.L), heavily sold this week after one of Norilsk's billionaire co-owners was forced to divest some assets, lost 14.7 percent in London to trade at a slight discount to the Moscow shares.

The government has pledged 500 billion roubles ($19.1 billion) of budget funds to support the stock market this year and next, and has said it plans to increase its stakes in state-controlled companies.

The start of government stock purchases has yet to be announced, though traders have speculated that state banks could buy shares on their own initiative, or that shares could rise on investor expectation that government money will flow in. "The volumes are not bad," UBS trader Maxim Gulevich said. "You get the feeling that there was some positive momentum after the last few days of falls. Maybe the promised government money is coming to the market."

Analysts say Russian shares are technically oversold and badly undervalued at price/earnings ratios as low as four times, though traders said large-scale bargain hunting was unlikely while the global credit crisis was playing out.

SUSPENSION

Both the MICEX and the dollar-denominated RTS exchange were suspended from 11:05 a.m. (0705 GMT). The RTS said it would resume full-scale trade on instructions from the Federal Financial Markets Service, the stock market regulator.

Some over-the-counter trading was resumed on both exchanges during the afternoon.

Overnight interbank lending rates MOSPRIMEOND= spiked to three-week highs of nearly 9 percent as investors, shut out of the stock market, turned to the money markets to raise cash.

The rouble, hit by foreign investors fleeing Russian assets, hovered around the 30.40 level against a euro-dollar basket which the central bank has been defending through currency market interventions in recent weeks.

Dealers estimate the central bank sold around $14 billion to prop up the rouble so far this week -- the equivalent of around 2.5 percent of Russia's reserves.

The RTS index , Russia's benchmark share index, fell over 11 percent to 759.40, its lowest level since July 2005, before the exchange halted trade. The MICEX had fallen 14.35 percent to 637.87 when it was suspended.

"From a market point of view, they (the exchange) had to get a sense of the (trading) situation," a trader at a major Russian bank said. "Closing it was justified, although it was probably not justified to open it in the first place."

Regulators have stepped in to delay or suspend trading in Russian equities regularly in recent weeks. Trade was delayed for 2-1/2 hours on Tuesday but proceeded on schedule on Wednesday morning, contrary to traders' expectations. (Editing by John Stonestreet and David Holmes)