MOSCOW Russian shares trading in London rose and liquidity worries eased on Thursday after the Russian government extended emergency state support to $130 billion to stem the worst stock market losses in a decade.
The new package of measures, which included a surprise $5.5 billion cut in duties for the oil sector, pushed Russian shares on the London Stock Exchange .FTRIOB up 7 percent with Russia's two main stock exchanges shut for a second day.
"For the first time I'm applauding what they (government) did," said Denis Sarantsev, Managing Director of brokerage UnicreditAton. "It was wise not to reopen the market today ... What we need now is stability"
Money market rates also fell sharply but liquidity concerns remained and yields on government bonds rose to their highest levels in three and a half years as the central bank again spent billions of dollars to support the rouble.
Analysts estimated investors have taken about $36 billion out of Russia since early August, when a brief war with Georgia, combined with a fall in oil prices and global financial turmoil, turned Russian shares from must-have assets into toxic paper.
President Dmitry Medvedev said the country's financial market will receive a total of 500 billion roubles ($19.6 billion) of additional support, including half from the budget.
Finance Minister Alexei Kudrin, who until the markets crisis had led Cabinet opposition to new cuts in the tax burden, said the industry would see a cut in export duties to cope with a sharp fall in oil prices.
New measures bring the total amount of promised state support to financial markets to over $130 billion, including 1.5 trillion roubles of budget funds going to banking deposits, 1 trillion available via repo operations and some 300 billion that banks freed up after a cut in reserve requirements.
"Unlike a week ago, the government and regulators have finally changed their mind and recognized the existence of financial crisis," Raiffeisen Bank said in a flash note, adding the measures would support both money markets and stocks.
Kudrin said trading on Russian bourses will resume on Friday and top banks would lend $2.4 billion to market players.
Russian stocks rose in London with energy firms such as Rosneft (ROSNq.L) gaining as much as 19 percent on news of tax cuts and oil prices breaking again through $100 per barrel.
LIQUIDITY EASES, FOREX TIGHT
The fall in Russia's stock markets since May has been steeper than in other emerging markets, with many in the market attributing that in part to the increased political risk from Russia's military intervention in Georgia.
The domestic political impact has so far been limited because private share ownership in Russia is small, but some analysts say the pressure for greater state intervention in the markets could derail Medvedev's agenda of liberal reforms.
Russia's benchmark RTS .IRTS is now down around 60 percent from its peak levels in May. Lending between banks nearly dried up this week after problems at medium-sized brokerage Kit Finance sparked speculation there could be bigger victims.
The state helped rescue Kit on Wednesday when management firm Leader, part of the business empire of Russian state gas giant Gazprom (GAZP.MM), said it would buy the brokerage.
"(The deal is) very reminiscent of the Bear Stearns bailout and that too left investors wondering if Russia will have a Lehman-style follow on," said Chris Weafer, chief strategist at brokerage Uralsib.
Liquidity injections and a cut in banks' reserve requirement led on Thursday to a decline in money market rates to 8.0-8.5 percent from 10.0-10.5 percent and demand at the central bank's repo auctions was below peak levels.
But the currency market remained tight as dealers said the central bank sold yet another $5 billion on Thursday to keep the rouble steady versus the dollar/euro basket at 30.37.
Russian officials say the country's decade-long economic boom and its forex reserves, the world's third largest, insulate it well from the global storm.
But reserves have been shrinking fast in the past weeks as the government moved to protect the rouble from capital flight. They fell by a further $13 billion to $560 billion as of September 12, the central bank said on Thursday.
Rising sovereign risks depressed prices on Russia's benchmark 2030 Eurobond with yields rising to its highest level in 3-1/2 years.
When trading in stocks resumes in Russia on Friday some operations will still remain suspended including margin trading, when investors borrow money from the broker, and short selling, or bets on a fall in an asset's price, as officials blame them for the market slump.
(Additional reporting by Toni Vorobyova; Writing Dmitry Zhdannikov; Editing by Hans Peters)