* RTS down 10 percent since early last week
* Russia this year's worst performer among emerging stocks
* But falls milder than when Ukraine crisis erupted
* Political risk very hard to assess - analyst
(Updates with closing prices, adds comment)
By Lidia Kelly and Megan Davies
MOSCOW, July 21 Russian shares slid on Monday to
a two-month closing low as Moscow came under fierce
international pressure over the downing of Malaysia Airlines
flight MH17 and European governments threatened to follow the
United States in widening economic sanctions.
Monday's losses extended a near-8 percent slump last week
provoked by Washington's imposition of sanctions on large
Russian domestic companies, including oil major Rosneft which
again fell sharply on Monday.
"There's no doubt that investors are uneasy - there are a
lot of questions out there," said Gazprombank strategist Erik
DePoy. "It is an emotional time... the (airliner crash) has
exacerbated tensions already there."
Russian stocks are this year's worst performers among
emerging markets, losing 12 percent in dollar terms compared
with a 6 percent gain on the benchmark MSCI index as a whole.
The dollar-denominated RTS index fell 2.80 percent
to 1,249.9 points, leaving it down 10 percent since the
beginning of last week.
The rouble-traded MICEX hit its lowest point since
mid-May. It closed 2.56 percent lower at 1,386.1 points, down 7
percent since the start of last week.
The United States has presented what it says is overwhelming
evidence of Russian complicity in the shooting down of the jet
over eastern Ukraine last Thursday, and demanded President
Vladimir Putin use his influence over pro-Moscow rebels who
control the crash sites to allow international investigators
Putin blamed the Ukrainian military for the disaster, in
which 298 people died, and said on Monday that everything must
be done to guarantee the security of the international experts
at the site.
The Russian Defence Ministry also challenged the accusations
from the United States and Kiev, saying its air space control
system had detected Ukrainian warplanes flying close to the
Britain, Germany and France agreed at the weekend that they
should be ready to ratchet up sanctions when European foreign
ministers meet in Brussels on Tuesday.
DePoy said the sell-off was an "across the board lightening
of positions" but noted that the market had not fallen to the
same degree as when the crisis first erupted with the fall of a
pro-Russian president in Ukraine and Moscow's annexation of
Crimea in March.
Companies targeted by last week's U.S. sanctions continued
to fall. Rosneft closed down 2.52 percent, bringing
its fall since the beginning of last week to 8 percent. Gas
producer Novatek, which was also slapped with U.S.
sanctions, was down 2.47 percent, bringing its fall since the
beginning of last week to 9 percent.
The overall falls were bigger than those on overseas
markets, where London's FTSE fell 0.5 percent on the day
and the pan-European FTSEurofirst 300 lost 0.6 percent.
"Increased risks and increased volatility are the main
characteristics of the market situation," said Dmitry Kulakov,
head equity trader at Olma investment house in Moscow.
"Technical analysis sees possible further downward correction on
While hitting individual companies, the U.S. sanctions also
make it more difficult for Russian companies to refinance
existing international loans and has dashed hopes that the
country's syndicated loan market is reopening.
The financial subindex on MICEX, a market
capitalisation-weighted price index of Russia's top-tier and
most liquid financial stocks, underperformed, closing 2.7
percent down on the day and losing more than 9 percent since
early last week.
Sberbank, Russia's largest lender dropped 4.6
percent and VTB, the second biggest, is also being hit. "Though
not on the sanctions list, Sberbank and VTB shares will likely
remain under pressure, along with the sector as a whole,"
analysts at Morgan Stanley wrote in a note.
"The risk of a longer-term wider credit crunch increases as
funding is limited, the cost is higher and therefore credit
growth likely lower."
The U.S. sanctions also increased the cost of insuring
Russian debt against default - up 8 basis points on Monday in
the five-year credit default swaps market to 216 bps, according
to Markit data.
This means it costs $216,000 annually to insure exposure to
$10 million worth of Russian debt over a five-year period.
"We continue... to see further escalation of sanctions as
probable, with the US continuing to set the pace; but it will
likely be a protracted process," said analysts at Deutsche Bank
in a research note. "Despite the selloff, however, Russian asset
prices are still well above the lows reached in mid-March."
The rouble stayed largely stable against the dollar and the
euro at 35.15 and 47.60,
respectively, after losing nearly 3 percent last week.
End-of-month taxes that force exporters to convert their foreign
currency revenues into roubles aided the local currency.
The rouble was unchanged at 40.74 against the dollar-euro
basket which the central bank uses to gauge its
nominal exchange rate, but analysts say the worst is not yet
over for the currency.
"If you want to participate in this market you have to be a
risk taker," said Sebastien Barbe, head of EM FX strategy at
Credit Agricole in Paris. "It's hard to recommend long positions
on rouble assets at the moment because its not economic risk or
financial risk but political risk which is very hard to assess."
For rouble poll data see
For Russian equities guide see
For Russian treasury bonds see
Russia in graphics: link.reuters.com/dun63s
(Additional reporting by Sujata Rao-Coverley in London; Writing
by Megan Davies and Lidia Kelly; editing by David Stamp)