(Adds comment, updates prices)
By Jason Bush and Zlata Garasyuta
MOSCOW Aug 28 Russian stock indexes and the
rouble plunged on Thursday as Ukraine accused Russia of sending
its army to support separatist rebels in eastern Ukraine,
increasing the likelihood of new western sanctions against
At 1415 GMT, the dollar-denominated RTS index had
plunged 3.9 percent to 1,212 points. The rouble-based MICEX
was 2.1 percent lower at 1,418 points.
Ukraine's President Petro Poroshenko cancelled a trip to
Turkey and called an emergency meeting of his defence chiefs
because Russian troops had entered the country.
Russian asset prices were already falling on Thursday
morning, following earlier Ukrainian claims that Russian troops
were involved in capturing Novoazovsk, a Ukrainian port on the
Sea of Azov.
Adding to the tension, Russian state television reported
that Alexander Zakharchenko, the leader of pro-Russian
separatist rebels in eastern Ukraine, had said serving Russian
soldiers on leave were fighting alongside the rebels.
NATO also said on Thursday that more than 1,000 Russian
troops were operating inside Ukraine.
Direct Russian military intervention in eastern Ukraine has
been among the deepest worries of investors in Russian stocks.
Any such move is likely to provoke further western sanctions
against Russia that could damage its economy or major companies.
"From all this, it follows that the Kremlin is determined to
fight to the end with Ukraine. I fear that a new wave of
sanctions against Russia could follow - already more serious
ones," said Vadim Bit-Avragim, senior portfolio manager at
The latest market plunge followed a rally in the two weeks
leading up to Aug 26, when Poroshenko met with Russia's Vladimir
Putin at a summit in Minsk to discuss peace proposals. But the
summit produced no diplomatic breakthroughs and was followed by
counter-attacks on Ukrainian forces by the rebels.
"We believe that financial markets have become excessively
optimistic in the glow of encouraging statements. The fighting
appears likely to continue," J.P. Morgan said in a research
report, recommending that investors move to underweight
positions in Russian and Ukrainian sovereign bonds.
The yield on Russia's 2023 treasury bond was at
9.64 percent on Thursday, up 31 basis points since Wednesday.
The yield on its 2030 Eurobond had risen 30 basis
points to 4.88 percent.
The rouble fell sharply, reaching its weakest point against
the dollar since March, when it dropped to a record low of 37.
It lost 1.9 percent against the dollar to 36.87,
1.7 percent against the euro to 48.54 and 1.8
percent to 42.13 against its dollar-euro basket.
Investors ignored better-than-expected financial results
from Sberbank, Russia's top bank, which was down 4
percent as the general sell-off weighed on liquid stocks.
Sberbank reported results that showed a 2.3 percent fall in
first half net profit and a 13 percent rise in second quarter
net profit, beating analysts' forecasts.
For rouble poll data see
For Russian equities guide see
For Russian treasury bonds see
Russia in graphics: link.reuters.com/dun63s
(Reporting By Jason Bush and Zlata Garasyuta, editing by Larry